The J. M. Smucker Company (SJM) 10-Q 2001 Q3 Quarterly report

TABLE OF CONTENTS

EXHIBIT 27 FINANCIAL DATA SCHEDULE

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2001

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 24,260,673 Common Shares outstanding on January 31, 2001.

The Exhibit Index is located at Sequential Page No. 13.

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

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

		Three Months Ended						Nine Months Ended
		January 31,						January 31,
		2001			2000			2001			2000
		(Dollars in thousands, except per share data)
Net sales		$	151,020		$	150,428		$	481,549		$	475,888
Cost of products sold			96,510			95,937			312,476			308,496
			54,510			54,491			169,073			167,392
Selling, distribution, and administrative expenses			41,758			41,437			126,543			122,036
Nonrecurring charge			—			4,805			2,152			4,805
			12,752			8,249			40,378			40,551
Other income (expense)
	Interest income		568			578			2,030			2,056
	Interest expense		(2,192	)		(1,284	)		(5,058	)		(2,617	)
	Other – net		(290	)		173			(231	)		790
Income before income taxes			10,838			7,716			37,119			40,780
Income taxes			3,945			2,753			14,183			15,391
Net income		$	6,893		$	4,963		$	22,936		$	25,389
Net income per Common Share		$	0.29		$	0.17		$	0.89		$	0.88
Net income per Common Share assuming dilution		$	0.28		$	0.17		$	0.88		$	0.88
Dividends declared on Common Shares		$	0.16		$	0.15		$	0.48		$	0.45

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

				January 31, 2001			April 30, 2000
				(Dollars in Thousands)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	30,788		$	23,773
	Trade receivables, less allowances				52,459			62,518
	Inventories:
			Finished products		52,611			52,653
			Raw materials, containers, and supplies		69,453			68,862
					122,064			121,515
	Other current assets				14,301			11,996
			Total Current Assets		219,612			219,802
PROPERTY, PLANT, AND EQUIPMENT
	Land and land improvements				17,539			18,479
	Buildings and fixtures				79,938			87,803
	Machinery and equipment				232,372			214,012
	Construction in progress				28,759			29,507
					358,608			349,801
	Less allowances for depreciation				(186,223	)		(175,153	)
			Total Property, Plant and Equipment		172,385			174,648
OTHER NONCURRENT ASSETS
	Intangible assets				46,907			50,285
	Other assets				24,994			21,319
			Total Other Noncurrent Assets		71,901			71,604
				$	463,898		$	466,054
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts payable			$	27,626		$	23,190
	Other current liabilities				37,016			35,669
			Total Current Liabilities		64,642			58,859
NONCURRENT LIABILITIES
	Long-term debt				135,000			75,000
	Other noncurrent liabilities				18,991			18,722
			Total Noncurrent Liabilities		153,991			93,722
SHAREHOLDERS’ EQUITY
	Common Shares				6,065			7,081
	Additional capital				17,363			17,190
	Retained income				245,732			310,843
	Less:
		Deferred compensation			(2,415	)		(3,091	)
		Amount due from ESOP			(8,925	)		(9,223	)
		Accumulated other comprehensive loss			(12,555	)		(9,327	)
			Total Shareholders’ Equity		245,265			313,473
				$	463,898		$	466,054

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Nine Months Ended
			January 31,
			2001			2000
			(Dollars in Thousands)
OPERATING ACTIVITIES
	Net income		$	22,936		$	25,389
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		16,361			15,622
		Amortization		3,329			3,328
		Nonrecurring charge, net of tax benefit		1,313			3,192
		Other adjustments		15,031			(42,241	)
Net cash provided by operating activities				58,970			5,290
INVESTING ACTIVITIES
	Additions to property, plant, and equipment			(22,832	)		(21,402	)
	Businesses acquired — net of cash			—			(5,298	)
	Disposal of property, plant, and equipment			153			505
	Other – net			1,110			1,031
Net cash used for investing activities				(21,569	)		(25,164	)
FINANCING ACTIVITIES
	Proceeds from long-term debt			60,000			75,000
	Reduction in short-term debt – net			—			(8,966	)
	Purchase of Common Shares			(80,965	)		(14,587	)
	Dividends paid			(12,834	)		(12,965	)
	Other – net			3,750			643
Net cash (used for) provided by financing activities				(30,049	)		39,125
Effect of exchange rate changes				(337	)		113
Net increase in cash and cash equivalents				7,015			19,364
Cash and cash equivalents at beginning of period				23,773			681
Cash and cash equivalents at end of period			$	30,788		$	20,045

(  ) Denotes use of cash

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A –Basis of Presentation

      The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended January 31, 2001, 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 January 31, 2001, 70,000,000 Common Shares were authorized. There were 24,260,673 and 28,325,280 shares outstanding at January 31, 2001 and April 30, 2000, respectively. Shares outstanding are shown net of 8,163,903 and 4,099,296 treasury shares at January 31, 2001 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 $1,363,000 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						Nine Months Ended
		January 31,						January 31,
(Dollars in thousands)		2001			2000			2001			2000
Net sales:
	Domestic	$	129,313		$	127,016		$	412,976		$	411,568
	International		21,707			23,412			68,573			64,320
Total net sales		$	151,020		$	150,428		$	481,549		$	475,888
Segment profit:
	Domestic	$	20,696		$	22,314		$	66,813		$	73,365
	International		1,882			2,551			5,921			6,923
Total segment profit			22,578			24,865			72,734			80,288
	Interest income		568			578			2,030			2,056
	Interest expense		(2,192	)		(1,284	)		(5,058	)		(2,617	)
	Amortization expense		(1,101	)		(1,191	)		(3,329	)		(3,328	)
	Nonrecurring charge		—			(4,805	)		(2,152	)		(4,805	)
	Corporate administrative expenses		(10,297	)		(9,398	)		(30,067	)		(28,948	)
	Other unallocated income (expense)		1,282			(1,049	)		2,961			(1,866	)
Income before income taxes		$	10,838		$	7,716		$	37,119		$	40,780

      Note D –Financing Arrangements

      The Company has uncommitted lines of credit providing up to $65,000,000 for short-term borrowings. No amounts were outstanding at January 31, 2001.

      Long-term debt consists of the following:

(Dollars in thousands)	January 31, 2001		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				Nine Months Ended
		January 31,				January 31,
		2001		2000		2001		2000
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	6,893	$	4,963	$	22,936	$	25,389
Denominator:
Denominator for earnings per Common Share –     weighted-average shares			24,089,174		28,544,401		25,830,130		28,810,677
Effect of dilutive securities:
	Stock options		230,500		21,179		114,970		75,238
	Restricted stock		94,454		37,285		74,270		20,931
Denominator for earnings per Common Share –     assuming dilution			24,414,128		28,602,865		26,019,370		28,906,846
Net income per Common Share		$	0.29	$	0.17	$	0.89	$	0.88
Net income per Common Share – assuming dilution		$	0.28	$	0.17	$	0.88	$	0.88

Note F –Comprehensive Income

      During the three-month periods ended January 31, 2001 and 2000, total comprehensive income was $8,204,000 and $5,294,000, respectively. Total comprehensive income for the nine-month periods ended January 31, 2001 and 2000 was $19,708,000 and $24,315,000, 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.

      In September 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board issued Consensus Ruling 00-10, Accounting for Shipping and Handling Fees and Costs(EITF 00-10). EITF 00-10 addresses the accounting for shipping and handling costs billed to customers and prohibits the netting of such costs against the related revenue. The Company currently plans to adopt EITF 00-10 in the fourth quarter of fiscal 2001. Adopting EITF 00-10 will not impact future earnings.

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      Note H –Reclassifications

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

Item 2.Management’s Discussion and Analysis

      This discussion and analysis deals with comparisons of material changes in the condensed, consolidated financial statements for the three-month and nine-month periods ended January 31, 2001 and 2000.

Results of Operations

      Sales for the third quarter ended January 31, 2001 were $151,020,000, compared to $150,428,000 in the prior year third quarter while sales for the nine-months ended January 31, 2001 were $481,549,000, up 1% over sales of $475,888,000 for the same period last year.

      Sales in the domestic segment were up 2% for the quarter, and flat year to date. In the quarter, the Company’s consumer business grew 2%, with continued strong share-of-market results in the fruit spreads categories. The sales growth came from the warehouse club-store and mass retail channels with both achieving comparable quarter increases in excess of 30%. 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. However, sales of traditional portion control items were down for the quarter. The specialty business was up for the quarter due primarily to new product sales. In the beverage area, sales ofThe R. W. Knudsen FamilyandSanta Cruz Organicproducts continue to grow. However, overall beverage sales were flat to last year, both for the quarter and year to date, due to softness inAfter the Fallbrand sales.

      In the industrial area, sales of both new and existing bakery ingredient products increased for the quarter. On a year-to-date basis, however, domestic industrial business is behind last year in sales due to lower than planned orders from certain major customers. While sales to new customers are expected to make up part of the shortfall, it is likely that domestic industrial results for the year will fall short of fiscal 2000 results.

      Although the Canadian business continues to perform well, total sales in the international segment were down 7% in the quarter, due primarily to the impact of exchange rates and increased competitive activity in the Company’s Australian market. Sales in the Company’s Mexican market were also down. The impact of a strong U.S. dollar, primarily in comparison to the Australian and Canadian dollars, resulted in a decrease in the third quarter sales of approximately $1,700,000 compared to last year’s third quarter. Sales for the international segment were up 7% year to date, due to a full year inclusion of the Company’s Brazilian operation. Had exchange rates remained constant with the prior year, international sales would have been approximately $4,000,000 higher for the first nine months.

      The cost of products sold during the quarter increased slightly from 63.8% to 63.9%. During the quarter, the Company continued to benefit from the lower cost of fruit packed during the summer months. However, these savings were partially offset by the impact of revaluing carryover fruit inventories (i.e., fruit packed in the prior fiscal year) to reflect the current lower cost. The savings

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were also offset by increased energy costs, which were up 40% for the quarter. On a year-to-date basis, cost of products sold was 64.9% compared to 64.8% for the same period last year.

      Selling, distribution, and administrative (SD&A) expenses increased modestly for the quarter primarily due to a 12% increase in distribution costs. For the first nine months, SD&A increased as a percent of sales from 25.6% to 26.3%, due to increased marketing costs related to the introduction of new products and increased administrative costs associated with the rollout of the Company’s information technology reengineering (ITR) project. With regard to the ITR project, implementation of the primary elements is largely complete and remains substantially on plan with regard to costs. The Company is currently reexamining the implementation schedule for the remaining modules taking into consideration overall resource requirements and relative benefit.

      Interest expense increased over the prior year due to the long-term debt placement completed earlier in the year. During the quarter the Company capitalized approximately $159,000 in interest associated with the Company’s ITR project. Year to date, the Company has capitalized approximately $636,000 in interest associated with the ITR project.

      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 with an increase in cash and cash equivalents of $7,015,000 during the first nine months of the year. This increase in cash has occurred despite the fact that approximately $20 million of on-hand cash was used in conjunction with the stock repurchase discussed below. The favorable cash position is primarily the result of active management of inventory and accounts receivable levels, down $18,183,000 and $3,107,000, respectively, compared to January 31, 2000.

      During the first nine months of the current fiscal year, 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 $1,363,000 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 nine-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

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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.

      In September 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board issued Consensus Ruling 00-10, Accounting for Shipping and Handling Fees and Costs(EITF 00-10). EITF 00-10 addresses the accounting for shipping and handling costs billed to customers and prohibits the netting of such costs against the related revenue. The Company currently plans to adopt EITF 00-10 in the fourth quarter of fiscal 2001. Adopting EITF 00-10 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 that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, the success and cost of introducing new products, the ability of business areas to achieve sales targets and the costs associated with attempting to do so, 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 6.Exhibits and Reports on Form 8-K

(a)	Exhibits
	See the Index of Exhibits that appears on Sequential Page No. 13 of this report.
(b)	Reports on Form 8-K
	No Reports on Form 8-K were required to be filed during the quarter for which this report is filed.

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SIGNATURES

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

March 15, 2001	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 and Co-Chief Executive Officer

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INDEX OF EXHIBITS

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

Assigned		Sequential
Exhibit No. *	Description	Page No.
27	Financial data schedules pursuant to Article 5 in Regulation S-X.

* Exhibits 2, 3, 4, 10, 11, 15, 18, 19, 22, 23, 24, and 99 are either inapplicable to the Company or require no answer.

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