The J. M. Smucker Company (SJM) 10-Q 2001 Q2 Quarterly report

TABLE OF CONTENTS

Exhibit 3(A)--Amended Articles of Incorporation

Exhibit 3(B)--Regulations as amended Aug. 28, 2000

Exhibit 10--Note Purchase Agreement

Exhibit 27--Financial Data Schedule

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No. 1 of 12 Pages

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2000

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 24,186,382 Common Shares outstanding on October 31, 2000.

The Exhibit Index is located at Sequential Page No. 12.

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No. 2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)

		Three Months Ended						Six Months Ended
		October 31,						October 31,
		2000			1999			2000			1999
		(Dollars in thousands, except per share data)
Net sales		$	166,862		$	163,965		$	330,529		$	325,460
Cost of products sold			110,374			109,092			215,966			212,559
			56,488			54,873			114,563			112,901
Selling, distribution, and administrative expenses			42,776			39,804			84,785			80,599
Nonrecurring charge			2,152			—			2,152			—
			11,560			15,069			27,626			32,302
Other income (expense)
	Interest income		712			755			1,462			1,478
	Interest expense		(1,968	)		(853	)		(2,866	)		(1,333	)
	Other — net		(195	)		250			59			617
Income before income taxes			10,109			15,221			26,281			33,064
Income taxes			3,931			5,832			10,238			12,638
Net income		$	6,178		$	9,389		$	16,043		$	20,426
Net income per Common Share		$	0.25		$	0.33		$	0.60		$	0.71
Net income per Common Share assuming dilution		$	0.24		$	0.32		$	0.60		$	0.70
Dividends declared on Common Shares		$	0.16		$	0.15		$	0.32		$	0.30

See notes to condensed consolidated financial statements

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No. 3

THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

					October 31, 2000			April 30, 2000
					(Dollars in Thousands)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents				$	9,207		$	23,773
	Trade receivables, less allowances					64,416			62,518
	Inventories:
				Finished products		50,328			52,653
				Raw materials, containers, and supplies		81,874			68,862
						132,202			121,515
	Other current assets					13,185			11,996
				Total Current Assets		219,010			219,802
PROPERTY, PLANT, AND EQUIPMENT
	Land and land improvements					17,475			18,479
	Buildings and fixtures					78,198			87,803
	Machinery and equipment					229,405			214,012
	Construction in progress					26,564			29,507
						351,642			349,801
	Less allowances for depreciation					(180,737	)		(175,153	)
				Total Property, Plant and Equipment		170,905			174,648
OTHER NONCURRENT ASSETS
	Intangible assets					47,374			50,285
	Other assets					24,821			21,319
				Total Other Noncurrent Assets		72,195			71,604
					$	462,110		$	466,054
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts payable				$	33,557		$	23,190
	Other current liabilities					35,931			35,669
				Total Current Liabilities		69,488			58,859
NONCURRENT LIABILITIES
	Long-term debt					135,000			75,000
	Other noncurrent liabilities					19,179			18,722
			Total Noncurrent Liabilities			154,179			93,722
SHAREHOLDERS’ EQUITY
	Common Shares					6,047			7,081
	Additional capital					14,833			17,190
	Retained income					243,162			310,843
	Less:
		Deferred compensation				(2,808	)		(3,091	)
		Amount due from ESOP				(8,925	)		(9,223	)
		Accumulated other comprehensive loss				(13,866	)		(9,327	)
				Total Shareholders’ Equity		238,443			313,473
					$	462,110		$	466,054

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)

			Six Months Ended
			October 31,
			2000			1999
			(Dollars in Thousands)
OPERATING ACTIVITIES
	Net income		$	16,043		$	20,426
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		10,827			10,857
		Amortization		2,228			2,137
		Nonrecurring charge, net of tax benefit		1,313			—
		Other adjustments		(1,463	)		(54,434	)
Net cash provided by (used for) operating activities				28,948			(21,014	)
INVESTING ACTIVITIES
	Additions to property, plant, and equipment			(16,202	)		(16,462	)
	Disposal of property, plant, and equipment			140			131
	Other — net			733			681
Net cash used for investing activities				(15,329	)		(15,650	)
FINANCING ACTIVITIES
	Proceeds from long-term debt			60,000			75,000
	Reduction in short-term debt — net			—			(8,966	)
	Purchase of common shares			(80,419	)		(6,517	)
	Dividends paid			(8,997	)		(8,664	)
	Other — net			1,832			212
Net cash (used for) provided by financing activities				(27,584	)		51,065
Cash flows (used for) provided by operations				(13,965	)		14,401
Effect of exchange rate changes				(601	)		109
Net (decrease) increase in cash and cash equivalents				(14,566	)		14,510
Cash and cash equivalents at beginning of period				23,773			681
Cash and cash equivalents at end of period			$	9,207		$	15,191

( ) Denotes use of cash

See notes to condensed consolidated financial statements

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No. 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" -->

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 six-month period ended October 31, 2000, are not necessarily indicative of the results that may be expected for the year ended April 30, 2001. 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, 2000.

Note B —Common Shares

      At October 31, 2000, 70,000,000 Common Shares were authorized. There were 24,186,382 and 28,325,280 shares outstanding at October 31, 2000 and April 30, 2000, respectively. Shares outstanding are shown net of 8,238,194 and 4,099,296 treasury shares at October 31, 2000 and April 30, 2000, respectively.

      In August 2000, the Company combined the Class A and Class B Common Shares into a single class of Common Shares with terms similar to the former Class A Common Shares. In conjunction with this combination, the Company repurchased 4,272,524 Common Shares at $18.50 per share. The Company incurred approximately $1,310,000 of expenses related to the combination and repurchase of Common Shares. These amounts were recorded as a reduction of shareholders’ equity. Prior year share information has been reclassified to conform to current year classification.

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Note C —Operating Segments

      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. The following table sets forth operating segments information:

		Three Months Ended						Six Months Ended
		October 31,						October 31,
(Dollars in thousands)		2000			1999			2000			1999
Net sales:
	Domestic	$	143,429		$	144,087		$	283,663		$	284,552
	International		23,433			19,878			46,866			40,908
Total net sales		$	166,862		$	163,965		$	330,529		$	325,460
Segment profit:
	Domestic	$	22,342		$	24,551		$	46,117		$	51,051
	International		1,888			1,958			4,039			4,372
Total segment profit			24,230			26,509			50,156			55,423
	Interest income		712			755			1,462			1,478
	Interest expense		(1,968	)		(853	)		(2,866	)		(1,333	)
	Amortization expense		(1,112	)		(1,140	)		(2,228	)		(2,137	)
	Nonrecurring charge		(2,152	)		—			(2,152	)		—
	Corporate administrative expenses		(10,163	)		(9,636	)		(19,770	)		(19,550	)
	Other unallocated income (expense)		562			(414	)		1,679			(817	)
Income before income taxes		$	10,109		$	15,221		$	26,281		$	33,064

Note D —Financing Arrangements

      The Company has an uncommitted line of credit providing up to $65,000,000 for short-term borrowings. No amounts were outstanding at October 31, 2000.

Long-term debt consists of the following:

(Dollars in thousands)	October 31, 2000		April 30, 2000
6.77% Senior, unsecured notes due June 1, 2009	$	75,000	$	75,000
7.70% Series A senior, unsecured notes due September 1, 2005		17,000		—
7.87% Series B senior, unsecured notes due September 1, 2007		33,000		—
7.94% Series C senior, unsecured notes due September 1, 2010		10,000		—
Total long-term debt	$	135,000	$	75,000

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.

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Note E —Income Per Share

      The following table sets forth the computation of earnings per Common Share and earnings per Common Share — assuming dilution:

		Three Months Ended				Six Months Ended
		October 31,				October 31,
		2000		1999		2000		1999
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	6,178	$	9,389	$	16,043	$	20,426
Denominator:
Denominator for earnings per Common Share — weighted-average shares			25,213,864		28,840,103		26,700,608		28,943,816
Effect of dilutive securities:
	Stock options		111,617		74,007		57,205		102,268
	Restricted stock		78,092		41,854		64,178		12,755
Denominator for earnings per Common Share — assuming dilution			25,403,573		28,955,964		26,821,991		29,058,839
Net income per Common Share		$	0.25	$	0.33	$	0.60	$	0.71
Net income per Common Share — assuming dilution		$	0.24	$	0.32	$	0.60	$	0.70

Note F —Comprehensive Income

      During the three-month periods ended October 31, 2000 and 1999, total comprehensive income was $2,476,000 and $8,950,000, respectively. Total comprehensive income for the six-month periods ended October 31, 2000 and 1999 was $11,504,000 and $19,021,000, respectively. Comprehensive income consists of net income and foreign currency translation adjustments.

Note G —Recently Issued Accounting Standards

      In December 1999, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin 101,Revenue Recognition in Financial Statements(SAB 101). SAB 101 provides criteria that must be met before revenue is recognized in the financial statements. The Company currently plans to adopt SAB 101 in the fourth quarter of fiscal 2001. Although the Company has not yet completed its evaluation of the potential impact of adopting SAB 101 on future earnings, it does not expect the impact to be significant.

      In May 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board issued Consensus Ruling 00-14,Accounting for Certain Sales Incentives(EITF 00-14). EITF 00-14 addresses the accounting for sales incentives offered to consumers and requires reporting of cash incentives as a reduction of revenue rather than as a selling expense. The Company currently plans to adopt EITF 00-14 in the fourth quarter of fiscal 2001. Adopting EITF 00-14 will not impact future earnings.

Note H —Reclassifications

      Certain prior year amounts have been reclassified to conform to current year classifications.

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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 six-month periods ended October 31, 2000 and 1999, respectively.

Results of Operations

      Sales for the second quarter were $166,862,000, up 2% over last year’s $163,965,000 while sales for the six-month period were $330,529,000 compared to $325,460,000 a year ago.

      Sales in the domestic segment were flat compared to last year’s second quarter. The Company’s consumer business grew 2%, with continued strong share-of-market results in fruit spreads and toppings. The sales growth came from the warehouse club-store channel where sales nearly doubled last year’s second quarter. Military sales were also up. The Company continued to see growth in its foodservice business, driven in large part by the continued success of theSmucker’s Uncrustablesline of thaw-and-serve peanut butter and jelly sandwiches. Sales in the beverage area, which had lagged the previous year for the first five months, rebounded strongly in October to finish the quarter 3% ahead of last year . The specialty business was also up for the quarter due primarily to new product sales. Sales in the domestic industrial business were off from the prior year as it continued to be adversely affected by softness in the businesses of certain of its ingredient customers.

      In the international segment, sales were up 18% for the quarter, and 15% year to date, primarily due to the Company’s new businesses in Scotland and Brazil, along with continued growth in the Canadian business. This growth occurred despite the impact of unfavorable exchange rates, primarily in Australia, and soft sales in the Company’s European market. Had exchange rates held constant with the prior year, international sales would have been up 24% and 20% on a quarter and year-to-date basis, respectively.

      The cost of products sold during the quarter decreased slightly from 66.5% to 66.1% as the Company began to benefit from the lower cost of fruit packed during the summer months. These lower costs helped offset the impact of higher costs experienced in the first quarter, and lowered the cost of products sold for the first half of the year to 65.3% which is comparable to the same period last year.

      Selling, distribution and administrative expenses increased primarily due to increased marketing costs related to the introduction of new products and increased administrative costs associated with the continued rollout of the Company’s information technology reengineering (ITR) project.

      During the quarter the Company finalized the sale of the formerMrs. Smith’sreal estate in Pottstown, Pennsylvania, resulting in a pretax loss of approximately $2,152,000 or $.05 per share. This transaction represents the final nonrecurring charge relating to the previously announced financial review of certain businesses and assets by the Company, initiated in fiscal 2000. The total amount of nonrecurring charges taken in connection with the review was $16,644,000, with $14,492,000 of that amount taken in fiscal 2000 and the remainder in the current quarter.

      Interest expense increased over the prior year due to the long-term debt placement completed during the quarter. During the quarter the Company capitalized approximately $172,000 in interest associated with the Company’s ITR project. Year to date, the Company has capitalized approximately $477,000 in interest associated with the ITR project.

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      The effective income tax rate increased from last year primarily due to tax credits included in the prior year rate.

Financial Condition — Liquidity and Capital Resources

      The financial position of the Company remains strong despite a decrease in cash and cash equivalents of $14,566,000 during the first half of the year.

      During the second quarter, the Company repurchased 4,272,524 Common Shares at $18.50 per share in conjunction with the shareholder value enhancement plan approved by shareholders at their annual meeting in August. In addition, the Company incurred approximately $1,310,000 of expenses related to the combination of Class A and Class B Common Shares and the repurchase of Common Shares which was recorded as a reduction of shareholders’ equity. The Company funded these repurchases with a combination of proceeds from the issuance of senior, unsecured notes in the amount of $60,000,000 and cash on hand. The weighted-average interest rate on these notes is 7.83% and is payable each March 1st and September 1st. The notes mature over terms of five to ten years.

      In addition to the share repurchase, other significant uses of cash during both the quarter and six-month period, included the seasonal procurement of fruit, capital expenditures, and the payment of dividends. Looking forward, the Company believes that cash on hand together with cash generated by operations, proceeds from the long-term debt placement, and available lines of credit will be sufficient to meet its fiscal 2001 cash requirements, including the payment of dividends and interest on debt outstanding.

Recently Issued Accounting Standards

      In December 1999, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin 101,Revenue Recognition in Financial Statements(SAB 101). SAB 101 provides criteria that must be met before revenue is recognized in the financial statements. The Company currently plans to adopt SAB 101 in the fourth quarter of fiscal 2001. Although the Company has not yet completed its evaluation of the potential impact of adopting SAB 101 on future earnings, it does not expect the impact to be significant.

      In May 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board issued Consensus Ruling 00-14,Accounting for Certain Sales Incentives(EITF 00-14). EITF 00-14 addresses the accounting for sales incentives offered to consumers and requires reporting of cash incentives as a reduction of revenue rather than as a selling expense. The Company currently plans to adopt EITF 00-14 in the fourth quarter of fiscal 2001. Adopting EITF 00-14 will not impact future earnings.

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. These risks and uncertainties include, but are not limited to, the success and cost of introducing new products, cost associated with the implementation of new business and information systems, the ability of the Company to manage effectively capacity constraints relating to new products, raw material and ingredient cost trends, and foreign currency exchange and interest rate fluctuations.

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PART II. OTHER INFORMATION

Item 4.Submission of Matters to a Vote of Security Holders

      The annual meeting of shareholders of the Company was held on August 15, 2000. At the meeting, the names of Fred A. Duncan, Charles S. Mechem, Jr., and Timothy P. Smucker were placed in nomination for the Board of Directors to serve three-year terms ending in 2003. All three nominees were elected with the results as follows:

	Votes For		Votes Withheld		Broker Nonvotes
Fred A. Duncan		53,714,402		386,687		0
Charles S. Mechem, Jr.		53,768,056		333,033		0
Timothy P. Smucker		53,577,734		523,345		10

The shareholders also voted on the combination of Class A and Class B Common Shares and the appointment of Ernst & Young LLP as the Company’s independent auditors for the 2001 fiscal year. The measures were approved as follows:

	Votes For		Votes Against		Abstentions		Broker Nonvotes
Combination of Common Shares		62,680,137		339,500		507,241		850,223
Appointment of Auditors		53,617,598		119,694		323,855		39,942

Only Class A shareholders were eligible to vote on the election of directors and appointment of auditors. Both Class A and Class B shareholders were eligible to vote on the share combination.

Item 6.Exhibits and Reports on Form 8-K

(a)	Exhibits
	See the Index of Exhibits that appears on Sequential Page No. 12 of this report.
(b)	Reports on Form 8-K
	On August 15, 2000, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting the results of the shareholder voting at the annual meeting. It was noted that the previously announced shareholder value enhancement plan received the required approval of shareholders at the annual meeting.
	On August 30, 2000 the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting that legal filings necessary to combine the Class A and Class B Common Shares into a new class of Common Shares had been completed. The Company’s new Common Shares began trading on the New York Stock Exchange under the symbol “SJM” on August 29, 2000.

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No. 11

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

December 12, 2000	THE J. M. SMUCKER COMPANY
	/s/ Steven J. Ellcessor
	BY STEVEN J. ELLCESSOR Vice President-Finance and Administration, Secretary/Treasurer, and General Counsel
	/s/ Richard K. Smucker
	AND RICHARD K. SMUCKER President

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No. 12

INDEX OF EXHIBITS

That are filed with the Commission and
The New York Stock Exchange

Assigned		Sequential
Exhibit No. *	Description	Page No.
3(a)	Amended Articles of Incorporation of The J. M. Smucker Company As in Effect as of August 28, 2000
3(b)	Regulations As Amended August 28, 2000
10	Note Purchase Agreement (Dated as of August 23, 2000)
27	Financial data schedules pursuant to Article 5 in Regulation S-X.

             *   Exhibits 2, 3, 4, 11, 15, 18, 19, 22, 23, 24, and 99 are either inapplicable to the Company or require no answer.