1
Exhibit 13
Five Year Summary of Selected Financial Data
- - ---------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993 1992 1991 1990
- - ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
- - ---------------------------------------------------------------------------------------------------------------------------
Statement of Income:
Net sales $511,525 $491,309 $483,472 $454,976 $422,357
Income before cumulative effect
of change in accounting method 30,498 37,399 34,118 31,744 30,177
Net income 30,498 32,945 34,118 31,744 30,177
- - ---------------------------------------------------------------------------------------------------------------------------
Financial Position:
Long-term debt 48,558 887 3,827 4,267 4,277
Total assets 378,641 294,811 277,768 252,429 224,840
- - ---------------------------------------------------------------------------------------------------------------------------
Other Data:
Per Common Share:
Income before cumulative effect
of change in accounting method 1.05 1.27 1.16 1.07 1.03
Net income 1.05 1.12 1.16 1.07 1.03
Dividends declared per Common Share:
Class A .47 .43 .39 .35 .28
Class B .47 .43 .39 .35 .28
- - ---------------------------------------------------------------------------------------------------------------------------
Summary of Quarterly Results of Operations
The following is a summary of unaudited quarterly results of operations for the years
ended April 30, 1994 and 1993. Results of 1993 reflect the adoption of the provisions
of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106), retroactive to May 1, 1992.
Income per Common Share
-----------------------------
Income Before Before Cumulative
Cumulative Effect Effect of Change
Quarter Net Gross of Change in Net in Accounting Net
Ended Sales Profit Accounting Method Income Method Income
- - -------------------------------------------------------------------------------------------------------------------------------
1994 July 31 $118,255 $ 43,876 $ 8,907 $ 8,907 $ .31 $ .31
October 31 138,426 49,940 10,422 10,422 .35 .35
January 31 120,616 43,662 7,387 7,387 .26 .26
April 30 134,228 47,992 3,782 3,782 (1) .13 .13 (1)
- - -------------------------------------------------------------------------------------------------------------------------------
1993 July 31 $124,781 $ 43,427 $ 9,513 $ 5,059 $ .32 $ .17
October 31 133,864 47,312 10,262 10,262 .35 .35
January 31 110,367 40,559 7,297 7,297 .25 .25
April 30 122,297 46,081 10,327 10,327 .35 .35
- - -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes charge of $2.3 million ($.08 per share) relating to the write-off of goodwill associated with a foreign subsidiary.
2
Exhibit 13
Stock Price Data
The Company's Class A and Class B Common Shares are listed on the New York Stock
Exchange--ticker symbols SJMA and SJMB, 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 24, 1994, was 7,159
and 5,308, respectively.
Class A Common Shares Class B Common Shares
- - ------------------------------------------------------------------------------------------------------------------------------
Quarter Ended High Low Dividends Quarter Ended High Low Dividends
- - ------------------------------------------------------------------------------------------------------------------------------
1994 July 31 $27.00 $21.50 $ .115 July 31 $24.625 $20.00 $ .115
October 31 25.25 20.50 .115 October 31 23.125 19.375 .115
January 31 25.50 20.75 .115 January 31 23.00 20.125 .115
April 30 25.50 21.75 .125 April 30 22.75 21.25 .125
- - ------------------------------------------------------------------------------------------------------------------------------
1993 July 31 $30.875 $25.00 $ .105 July 31 $28.25 $22.875 $ .105
October 31 31.00 26.75 .105 October 31 29.00 25.625 .105
January 31 32.875 26.625 .105 January 31 29.00 24.625 .105
April 30 29.00 23.875 .115 April 30 27.25 22.75 .115
- - ------------------------------------------------------------------------------------------------------------------------------
3
Exhibit 13
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
The J. M. Smucker Company
We have audited the accompanying consolidated balance sheets of The J. M.
Smucker Company as of April 30, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended April 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The J. M. Smucker Company at April 30, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes E and G to the consolidated financial statements, in
1993 the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions.
/s/ ERNST & YOUNG
Akron, Ohio
June 8, 1994
4
Management's Discussion and Analysis
Results of Operations
Comparison of 1994 with 1993
The Company posted record sales in 1994 of $511,525,000, an increase of 4% over
the 1993 level of $491,309,000. The inclusion of results from Canada Group
East and "Mrs. Smith's" since their respective dates of acquisition accounted
for the growth.
Total dollar sales within the Consumer business area were down slightly from
last year. The most significant decline was in the price-competitive,
warehouse club store market where the recent consolidations among the major
chains in the market have resulted in a loss of previous distribution. Within
the grocery market, volume declines in traditional fruitspreads and peanut
butter were somewhat offset by modest price increases on assorted items and
increased tonnage of "Simply Fruit" and "Low Sugar" fruitspreads, and dessert
toppings. The growth in the toppings area was primarily due to the successful
introduction of "Sundae Syrups" in various regions throughout the United
States. In the Company's beverage business, the recent introduction of
"Smucker Coolers" in the second half of the year helped build momentum and
permitted the beverage business to realize a modest increase over last year.
Sales within the International area were up nearly 50% over last year despite
the negative impact of foreign exchange rates. Had exchange rates remained
constant with fiscal 1993, sales would have been approximately 6% higher. All
of the increase in the International area occurred in the Canadian market as a
result of expanding the pre-acquisition Canadian business, now known as Canada
Group West, along with the previously mentioned Group East acquisition. The
Latin American market more than doubled sales as the Company continued its
effort to develop the "Smucker" fruitspread business in Mexico and other Latin
America markets. In the Australasian market, overall volume was down from last
year due to a poor apricot crop, which impacted fruit sales in the foodservice
and commercial markets, and to management's decision to phase out low emphasis
products. The business in Elsenham, England continues to fall short of
management's expectations, and the Company will continue to explore
alternatives for improvement during fiscal 1995.
5
In the Industrial business area, sales of formulated fruit products to other
consumer products companies realized another year of growth as the introduction
of several new products and the addition of new customers helped to broaden the
base of the formulated market. Overall Industrial sales were down a modest 2%
as a result of the Company's decision to eliminate certain unprofitable frozen
fruit product lines.
The Company's Foodservice business, which services restaurants, hotels, and
other institutional customers, experienced another good year with volume growth
in the core business items of portion control and traditional fruitspreads.
In the Specialty Foods area, the smallest of the Company's business areas,
intense price competition and an overall decline in demand for gift items
resulted in a decrease in sales of 8% from the previous year.
Net income for 1994 was $30,498,000 or $1.05 per share compared to last year's
$32,945,000 or $1.12 per share (after recognizing the impact of the accounting
change for postretirement benefits). The majority of the year-to-year
shortfall was attributed to two items - significant introductory advertising
expenditures in April for "Mrs. Smith's" new "SmartStyle" line of
thaw-and-serve desserts, and a decision by the Company to write off the
remaining $2,326,000 of goodwill associated with the Company's purchase of its
Elsenham Quality Foods Ltd. subsidiary in England.
The Company's gross profit was up slightly as a percentage of sales over last
fiscal year. Excluding the impact of the Company's two acquisitions, which
operated at lower profit margins than the Company's average, the gross profit
of the existing business realized approximately a one percent increase in the
profit margin percentage.
Selling, distribution, and administrative costs increased at a greater rate
than sales, mostly due to increased spending in the marketing area. As
mentioned above, the Company chose to execute an advertising program supporting
the introduction of the "SmartStyle" frozen dessert line. This program had
been planned prior to the purchase date. Additional marketing expenses were
incurred in support of the introduction of two new "Smucker" products, "Sundae
Syrups" and "Super Spreaders". The write-off of the Elsenham goodwill also
contributed to the overall increase in costs.
6
The use of cash to partially finance the Company's acquisitions resulted in
lower balances for investing purposes. As a result, interest income was down
compared to prior year. The impact of lower interest rates throughout most of
the year also contributed. Interest expense increased as a result of the debt
financing associated with the "Mrs. Smith's" acquisition and a reduction in the
amount of capitalized interest. The borrowed amount was $48,048,000 at April
30, 1994.
The Company's effective tax rate increased to 42.2% from 39.2% in 1993 due to
an increase in the federal statutory tax rate and an increase in items that are
not deductible for tax purposes, notably, the write-off of the Elsenham
goodwill.
7
Comparison of 1993 with 1992
During 1993 net sales increased $7,837,000 or approximately 2% over 1992.
Although this growth rate was somewhat below recent years, earnings increased
10% over fiscal 1992 before the cumulative effect of adopting SFAS 106.
Volume growth in the Industrial, Specialty Foods, and Foodservice strategic
business areas accounted for the sales increase. Within the Industrial area,
strong sales of fruit-based ingredients to other consumer products companies
were responsible for the growth, continuing last year's trend. The Specialty
Foods area realized the largest percentage increase in sales of any business
area as the Company continued to focus on expanding branded products within
this segment. Volume gains in portion control, fruit spread, and dessert
topping items contributed to the growth in Foodservice.
Total sales in the Consumer area were essentially flat during the year as
overall fruitspread volume remained constant with 1992 levels, despite share of
market gains. Within the grocery market, sales of the Company's "Simply Fruit"
product rebounded from 1992 to post strong growth in the highly competitive
"fruit-only" category. Sales of toppings also grew, helping to offset a
downturn in peanut butter sales. The Company realized substantial sales growth
in its warehouse club store and mass retail markets while a general softness in
the health and natural foods market contributed to a decline in sales of fruit
juice and beverage products.
8
In the International area, sales fell below 1992 results due to declining
exchange rates, economic conditions, and competitive activity. Conscious
decisions to de-emphasize sales of some lower margin items also contributed.
In Canada, U.S. dollar sales were comparable to last year as higher
distribution and introduction costs hindered market expansion. In the
Australasia market, sales increased as the Henry Jones Foods organization
assumed responsibility for "Smucker" brands in the Pacific Rim region. In the
United Kingdom, performance fell below expectations due to a soft economy, weak
pound sterling, and stiff competition.
Cost of products sold decreased as a percentage of net sales as the Company
benefited from lower costs on several key fruits and other raw materials and
from improved efficiencies at its manufacturing facilities. In addition, there
was continued focus on cost reduction efforts company-wide.
Selling, distribution, and administrative costs increased at a rate consistent
with sales, as higher selling and merchandising costs were partially offset by
marketing expenditures which remained at fiscal 1992 dollar levels. Corporate
administrative expenses increased slightly as a percent of net sales.
Interest income was down from last year due to lower interest rates in the
market and a decrease in interest income earned from other sources. Interest
expense decreased due to the absence of short-term borrowing during the year
and the early retirement of a portion of long-term debt.
The increase in income taxes was consistent with the pre-tax income increase.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" during the fourth quarter, retroactive to May 1,
1992. The cumulative effect of the adoption of this statement did not have a
material impact on the Company's results.
9
CAPITAL RESOURCES AND LIQUIDITY
The Company continues to maintain a strong financial position as growth has
been financed through a balance of internally generated funds and limited debt.
Although the cash balance at April 30, 1994 has declined from last year due to
the impact of acquisitions, cash provided from operations was a positive
$55,172,000. In addition to the acquisitions, capital expenditures of
$18,707,000 and the payment of dividends represented the greatest uses of cash
during the year. Dividends declared on all Common Shares rose 8% to
$13,642,000 or $.47 per share.
In April 1994, the Company replaced its existing lines of credit with a
three-year revolving credit agreement. Under the agreement, the Company can
borrow up to $125,000,000 to meet future working capital or growth
requirements. With the exception of borrowing to finance a portion of the Mrs.
Smith's acquisition, the Company has been able to meet all other cash
requirements either through short-term borrowings or internally generated
funds.
Based on projected cash flows for 1995, the Company expects additional
borrowing against its revolving credit agreement. The anticipated acquisition
of the "After The Fall" beverage business during the first quarter of fiscal
1995, along with seasonal purchases of fruit during the summer months, will
result in a substantial increase in borrowing during the first two quarters of
fiscal 1995. Debt balances are expected to return to levels consistent with
April 30, 1994 by the end of the year. Capital expenditures of $20,450,000 are
expected for 1995 as the Company continues to focus on modernization and
expansion of its facilities. The Company expects the combination of cash
provided from operations and borrowings available under the revolving credit
agreement to be sufficient to meet all cash requirements in fiscal 1995.
10
Exhibit 13
Statements of Consolidated Income
The J. M. Smucker Company
_________________________________________________________________________________________
(Dollars in thousands, except per share data)
- - -----------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993 1992
- - -----------------------------------------------------------------------------------------
Net sales $511,525 $491,309 $483,472
Cost of products sold 326,055 313,930 314,133
- - -----------------------------------------------------------------------------------------
Gross Profit 185,470 177,379 169,339
Selling, distribution, and administrative expenses 134,688 117,641 114,888
- - -----------------------------------------------------------------------------------------
Operating Income 50,782 59,738 54,451
Interest income 1,147 1,508 1,510
Other income-net 1,314 609 568
- - -----------------------------------------------------------------------------------------
53,243 61,855 56,529
Interest expense 520 385 446
- - -----------------------------------------------------------------------------------------
Income Before Income Taxes and Cumulative Effect of
Change in Accounting Method 52,723 61,470 56,083
Income taxes 22,225 24,071 21,965
- - -----------------------------------------------------------------------------------------
Income Before Cumulative Effect of Change in
Accounting Method 30,498 37,399 34,118
- - -----------------------------------------------------------------------------------------
Cumulative effect of change in accounting method
for postretirement benefits other than pensions -
net of tax benefit of $2,704 --- (4,454) ---
- - -----------------------------------------------------------------------------------------
Net Income $ 30,498 $ 32,945 $ 34,118
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
Income per Common Share Before Cumulative
Effect of Change in Accounting Method $ 1.05 $ 1.27 $ 1.16
- - -----------------------------------------------------------------------------------------
Cumulative effect of change in accounting method --- (.15) ---
- - -----------------------------------------------------------------------------------------
Net Income per Common Share $ 1.05 $ 1.12 $ 1.16
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
11
Exhibit 13
Consolidated Balance Sheets
The J. M. Smucker Company
____________________________________________________________________________________
(Dollars in thousands)
- - ------------------------------------------------------------------------------------
Assets April 30,
- - ------------------------------------------------------------------------------------
1994 1993
- - ------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 14,059 $ 50,445
Trade receivables, less allowance for doubtful
accounts of $419 ($300 in 1993) 47,828 40,354
Inventories:
Finished products 42,463 30,101
Raw materials, containers, and supplies 60,773 41,762
- - ------------------------------------------------------------------------------------
103,236 71,863
Other current assets 6,562 5,737
- - ------------------------------------------------------------------------------------
Total Current Assets 171,685 168,399
- - ------------------------------------------------------------------------------------
Property, Plant, and Equipment
Land and land improvements 13,533 11,792
Buildings and fixtures 68,362 53,824
Machinery and equipment 130,403 96,786
Construction in progress 6,486 4,502
- - ------------------------------------------------------------------------------------
218,784 166,904
Accumulated depreciation (81,278) (70,578)
- - ------------------------------------------------------------------------------------
Total Property, Plant, and Equipment 137,506 96,326
- - ------------------------------------------------------------------------------------
Other Noncurrent Assets
Goodwill 21,833 10,098
Trademarks and patents 38,328 11,826
Other assets 9,289 8,162
- - ------------------------------------------------------------------------------------
Total Other Noncurrent Assets 69,450 30,086
- - ------------------------------------------------------------------------------------
$378,641 $294,811
- - ------------------------------------------------------------------------------------
12
Exhibit 13
_______________________________________________________________________________________
(Dollars in thousands)
- - ---------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity April 30,
- - ---------------------------------------------------------------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 37,322 $ 27,433
Notes payable 4,327 4,431
Salaries, wages, and additional compensation 9,604 7,515
Accrued marketing and merchandising 16,209 6,456
Income taxes 2,124 2,155
Dividends payable 3,639 3,357
Other current liabilities 9,970 5,196
- - ---------------------------------------------------------------------------------------
Total Current Liabilities 83,195 56,543
- - ---------------------------------------------------------------------------------------
Long-term debt 48,558 887
Postretirement benefits other than pensions 8,874 7,836
Deferred income taxes 2,469 3,308
Other noncurrent liabilities 1,143 5,768
- - ---------------------------------------------------------------------------------------
Total Noncurrent Liabilities 61,044 17,799
- - ---------------------------------------------------------------------------------------
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--14,360,339 in 1994, and 14,407,493
in 1993 (net of 1,851,949 and 1,804,795 treasury
shares, respectively), at stated value 3,590 3,602
Class B - Authorized--35,000,000 shares;
outstanding--14,749,839 in 1994, and 14,791,173
in 1993 (net of 1,462,449 and 1,421,115 treasury
shares, respectively), at stated value 3,687 3,698
Additional capital 9,261 8,841
Retained income 233,420 218,952
Less:
Deferred compensation (576) (1,430)
Amount due from ESOP Trust (10,670) (10,853)
Currency translation adjustment (4,310) (2,341)
- - ---------------------------------------------------------------------------------------
Total Shareholders' Equity 234,402 220,469
- - ---------------------------------------------------------------------------------------
$378,641 $294,811
- - ---------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
13
Exhibit 13
Statements of Consolidated Cash Flows
The J. M. Smucker Company
________________________________________________________________________________________
(Dollars in thousands)
- - ----------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993 1992
- - ----------------------------------------------------------------------------------------
Operating Activities
Net income $30,498 $32,945 $34,118
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in
accounting method --- 4,454 ---
Depreciation 12,739 11,137 10,753
Amortization 2,639 1,915 2,055
Write-off of goodwill 2,326 --- ---
Deferred income taxes (1,302) 145 434
Changes in assets and liabilities:
Trade receivables (6,097) 798 615
Inventories 500 6,059 (11,401)
Other current assets 188 (318) 851
Accounts payable and accrued items 12,780 (216) 4,771
Other - net 901 63 (776)
- - ----------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 55,172 56,982 41,420
- - ----------------------------------------------------------------------------------------
Investing Activities
Businesses acquired - net of cash (100,195) (2,098) ---
Additions to property, plant, and equipment (18,707) (21,004) (17,361)
Proceeds from the sale of property, plant, and
equipment 691 840 1,156
Other - net (572) (3,353) (622)
- - ----------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (118,783) (25,615) (16,827)
- - ----------------------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 48,048 --- ---
Reduction in long-term debt (377) (440) (440)
(Purchase) Sale of Common Shares (2,210) (2,111) 51
Net amount received from (loaned to) ESOP 183 250 (1,227)
Dividends paid (13,360) (12,364) (11,223)
Other (4,799) (2,500) ---
- - ---------------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing Activities 27,485 (17,165) (12,839)
- - ----------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (260) (25) 1
Net (Decrease) Increase in Cash and Cash Equivalents (36,386) 14,177 11,755
Cash and Cash Equivalents at Beginning of Year 50,445 36,268 24,513
- - ----------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $14,059 $50,445 $36,268
- - ----------------------------------------------------------------------------------------
<FN>
( ) Denotes use of cash
See notes to consolidated financial statements
14
Exhibit 13
Statements of Consolidated Shareholders' Equity
The J. M. Smucker Company
__________________________________________________________________________________________________________________
(Dollars in thousands)
- - ------------------------------------------------------------------------------------------------------------------
Deferred Amount due Currency Share-
Common Shares Additional Retained Compen- from ESOP Translation holders'
Class A Class B Capital Income sation Trust Adjustment Equity
- - ------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1991 $ 3,692 $ --- $10,544 $186,919 $(1,728) $ (9,876) $ 672 $190,223
Net income 34,118 34,118
Distribution of
Class B Common Shares 3,692 (3,692) ---
Stock plans 51 781 832
Dividends declared-
$.39 a share (11,451) (11,451)
Other 131 (1,227) (411) (1,507)
- - ------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1992 $ 3,692 $ 3,692 $ 7,034 $209,586 $ (947) $(11,103) $ 261 $212,215
Net income 32,945 32,945
Purchase of
Treasury shares (105) (14) (10,959) (11,078)
Stock plans 15 6 1,214 (483) 752
Dividends declared-
$.43 a share (12,620) (12,620)
Other 607 250 (2,602) (1,745)
- - ------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1993 $ 3,602 $ 3,698 $ 8,841 $218,952 $(1,430) $(10,853) $(2,341) $220,469
Net income 30,498 30,498
Purchase of
Treasury shares (15) (11) (22) (2,388) (2,436)
Stock plans 3 223 854 1,080
Dividends declared-
$.47 a share (13,642) (13,642)
Other 219 183 (1,969) (1,567)
- - ------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1994 $ 3,590 $ 3,687 $ 9,261 $233,420 $ (576) $(10,670) $(4,310) $234,402
======= ======= ======= ======== ======= ======== ======= ========
<FN>
See notes to consolidated financial statements
15
Exhibit 13
Notes to Consolidated Financial Statements
The J. M. Smucker Company
Fiscal Years Ended April 30, 1994, April 30, 1993, and April 30, 1992
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.
Cash and Cash Equivalents: The Company considers all short-term investments
with a maturity of three months or less to be cash equivalents.
Financial Instruments: The fair value of the Company's financial instruments
approximates their carrying amounts.
16
Exhibit 13
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 $11,169,000 and
$11,015,000 higher than reported at April 30, 1994 and 1993, 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 up to
40 years. Accumulated amortization of goodwill and intangible assets at April
30, 1994 and 1993, was $10,228,000 and $8,434,000, respectively.
Property, Plant, and Equipment: Property, plant, and equipment are carried
at cost with depreciation computed over the estimated useful life by the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes.
17
Exhibit 13
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 separate component of
shareholders' equity.
Net Income Per Common Share: Net income per Common Share is based on the
weighted average number of the Class A Common Shares and Class B Common Shares
considered outstanding during the year.
Reclassifications: Certain prior year amounts have been reclassified to
conform to current year classifications.
Note B: Operating Segments
The Company operates in one industry: the manufacturing and marketing of food
products. The following presents information about operations in different
geographic areas:
________________________________________________________________
(Dollars in thousands)
- - ----------------------------------------------------------------
Year Ended April 30, 1994 1993 1992
- - ----------------------------------------------------------------
Net sales:
United States $453,902 $452,846 $442,879
Foreign 57,623 38,463 40,593
- - ----------------------------------------------------------------
Total net sales $511,525 $491,309 $483,472
- - ----------------------------------------------------------------
Operating income (loss):
United States $ 81,013 $ 85,831 $ 81,613
Foreign (1,216)(1) 752 (1,413)
- - -----------------------------------------------------------------
79,797 86,583 80,200
Corporate expenses (29,015) (26,845) (25,749)
- - ----------------------------------------------------------------
Total operating income $ 50,782 $ 59,738 $ 54,451
- - ----------------------------------------------------------------
Identifiable assets:
United States $326,042 $259,302 $240,930
Foreign 52,599 35,509 36,838
- - ----------------------------------------------------------------
Total assets $378,641 $294,811 $277,768
- - ----------------------------------------------------------------
<FN>
(1) Includes the write-off of $2.3 million of goodwill associated
with a foreign subsidiary.
Identifiable assets include corporate and all other assets identified with
operations in each geographic area. There were no material amount of transfers
between geographic areas.
18
Exhibit 13
Note C: Acquisitions
On March 31, 1994, the Company acquired certain assets and assumed certain
liabilities of the "Mrs. Smith's" frozen pie business from Mrs. Smith's Frozen
Foods Co., a subsidiary of Kellogg Company, for $84,102,000 (contract price of
$80,100,000 plus closing adjustments). This business, located in Pottstown,
Pennsylvania, manufactures and markets branded frozen pies, desserts, and pie
shells under the "Mrs. Smith's" brand name. The purchase price was paid from a
combination of debt financing and internally generated funds. In connection
with the acquisition, the Company purchased $36,452,000 of intangible assets,
primarily trademarks and goodwill, and plans to amortize them over 40 years
using the straight-line method.
In July 1993, the Company purchased for $16,093,000 in cash, the jam, preserve,
and pie filling business of Culinar, Inc. of Canada. In connection with this
acquisition, the Company purchased $7,159,000 of intangible assets, primarily
goodwill, and plans to amortize them over 20 years using the straight-line
method.
These acquisitions have been recorded using the purchase method of accounting
and, accordingly, results of operations subsequent to the dates of acquisition
are included in the consolidated financial statements.
The acquisition of the Culinar business did not have a material impact on the
financial results of the Company. Had the acquisition of "Mrs. Smith's"
occurred at the beginning of fiscal 1993, proforma consolidated results would
have been as follows:
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993
- - -------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Net Sales $633,000 $635,000
Net Income $ 32,240 $ 35,954
Net Income per share $ 1.10 $ 1.22
The proforma results are based on historical financial information provided by
Mrs. Smith's Frozen Foods Co. and are adjusted to give effect to certain
costs, primarily interest expense, amortization of intangible assets,
depreciation on revalued property, plant, and equipment, and income taxes.
These unaudited results do not necessarily reflect the actual results which
would have occurred had the acquisition been completed at the beginning of
1993, nor are they necessarily indicative of future results.
During April 1994, the Company signed a letter of intent with After The Fall
Products, Inc. to acquire its beverage business located in Brattleboro,
Vermont. The transaction is subject to the execution of a purchase agreement
and other customary conditions and is expected to close in the first quarter of
fiscal 1995.
19
Exhibit 13
Note D: Retirement Plans
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. Net periodic pension cost included the
following components:
- - -------------------------------------------------------------------------------------
(Dollars in thousands)
- - -------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993 1992
- - -------------------------------------------------------------------------------------
Service cost-benefits earned during the period $1,256 $1,168 $1,016
Interest cost on projected benefit obligation 3,086 2,564 2,259
Actual return on plan assets (2,876) (2,204) (5,456)
Deferred (loss) gain (722) (1,253) 2,444
Net amortization and deferral 244 (107) (67)
- - --------------------------------------------------------------------------------------
Net periodic pension cost $ 988 $ 168 $ 196
- - --------------------------------------------------------------------------------------
20
Exhibit 13
The following sets forth in the aggregate the funded status and amounts
recognized in the Company's consolidated balance sheets for all of the
Company-administered domestic pension plans:
(Dollars in thousands)
- - ---------------------------------------------------------------------------------------
Year Ended April 30, 1994 1993
- - ---------------------------------------------------------------------------------------
Actuarial present value of accumulated benefit obligation:
Vested benefits $34,444 $28,938
Non-vested benefits 2,312 1,852
- - ---------------------------------------------------------------------------------------
Accumulated benefit obligation $36,756 $30,790
- - ---------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date $44,012 $36,541
Plan assets at fair value 42,520 40,404
- - ---------------------------------------------------------------------------------------
Plan assets (less than) in excess of projected benefit
obligation (1,492) 3,863
Unrecognized prior service cost 5,166 4,917
Unrecognized net gain from past experience (338) (4,805)
Unamortized net asset at transition (1,686) (1,777)
- - ---------------------------------------------------------------------------------------
Net prepaid pension cost $ 1,650 $ 2,198
- - ---------------------------------------------------------------------------------------
The expected long-term rate of return on plan assets was 9% for 1994, 1993,
and 1992. Plan assets consist of listed stocks and government obligations,
including 168,000 of both of the Company's Class A and Class B Common Shares at
April 30, 1994 and 1993. The discount rate was 7.5% and 8% in 1994 and 1993,
respectively, while the rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligations
was 5.75% for both years. Prior service costs are being amortized over the
average remaining service lives of the employees expected to receive benefits.
Included in the above table is the unfunded supplemental retirement benefit
plan which had a projected benefit obligation of $6,230,000 and $4,727,000 in
1994 and 1993, respectively.
The Company also charged to operations approximately $675,000, $606,000, and
$675,000 in 1994, 1993, and 1992, 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.
21
Exhibit 13
Note E: Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company sponsors several
unfunded defined postretirement plans which provide health care and life
insurance benefits to substantially all active and retired, domestic,
nonrepresented employees, 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.
During fiscal 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). This standard
requires that the estimated cost of postretirement benefits, principally
health care, be accrued over the period earned rather than expensed as
incurred. The effect of adopting SFAS 106 resulted in the Company recognizing
a one-time charge to consolidated income of $4,454,000 ($.15 per share), net of
$2,704,000 of income tax benefit.
22
Exhibit 13
Net periodic postretirement benefit expense related to these plans for 1994 and 1993
included the following:
- - -----------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993
- - -----------------------------------------------------------------------------------------
Service cost $ 421 $362
Interest cost 737 591
Net amortization and deferral 13 ---
- - -----------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,171 $953
- - -----------------------------------------------------------------------------------------
The following table sets forth the combined status of the plans as recognized in the
Consolidated Balance Sheets at April 30, 1994 and 1993:
- - -----------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993
- - -----------------------------------------------------------------------------------------
Accumulated benefit obligation:
Retirees $3,407 $2,642
Fully eligible active participants 1,351 1,241
Other active participants 5,045 3,953
Unrecognized actuarial loss (929) ---
- - -----------------------------------------------------------------------------------------
Postretirement benefits other than pensions $8,874 $7,836
- - -----------------------------------------------------------------------------------------
The discount rate assumption used to determine the actuarial present value of
the accumulated postretirement benefit obligation was 7.5% in 1994 and 8% in
1993. For 1995, the assumed health care cost trend rates were 11.8% for
participants under age 65 and 10.0% for participants age 65 or older. Both
rates were assumed to decrease gradually to 5.0% in the year 2004. 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 increase in the
assumed cost trend rate in each year would increase the accumulated
postretirement benefit obligation as of April 30, 1994 by $1,824,000 and the
net periodic postretirement benefit cost for the year by $253,000.
In addition, certain of the Company's active employees participate in
multi-employer plans which provide defined postretirement health care benefits.
The aggregate amount contributed to these plans, including the charge for
periodic postretirement benefit costs, totaled $1,436,000, $1,356,000, and
$1,185,000 in 1994, 1993, and 1992, respectively.
23
Exhibit 13
Note F: Stock Benefit Plans
ESOP: The Company sponsors an Employee Stock Ownership Plan and Trust (ESOP)
for domestic, non-represented 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. No additional borrowings were made by the ESOP in
either fiscal year 1994 or 1993; $1,384,000 was borrowed during 1992. All
existing and future loans bear interest at 1/2% over prime and will be payable
as shares are allocated to participants. The Company incurred no net expense
in any of the three years. The principal payments received from the ESOP in
1994, 1993, and 1992 were $183,000, $250,000, and $157,000, respectively.
Savings Plan: The Company offers an employee savings plan under Section
401(k) of the Internal Revenue Code for all domestic employees not covered by
collective bargaining agreements. The Company's contributions under the plan
are based on a specified percentage of employee contributions. Charges to
operations for this plan in 1994, 1993, and 1992 were $787,000, $736,000, and
$470,000, respectively.
Restricted Stock: The Restricted Stock Bonus Plan provides for issuance of
Common Shares to key employees. There are 105,600 Class A and 148,600 Class B
Common Shares available for issuance under the plan at April 30, 1994. 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 were no awards made
during the fiscal year. An award of 43,000 Class A Common Shares was made in
1993.
24
Exhibit 13
Stock Options: The Company has two stock option plans covering officers and
certain key employees. Options granted under these plans 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 on the effective date of the
grant.
Changes in the stock option plans are as follows:
_________________________________________________________________________
Common Shares Option Price
Class A Class B Per Share
- - -------------------------------------------------------------------------
Outstanding at April 30,
1991 410,532 410,532
Granted 169,100 500 $21.97-$31.50
Exercised (1,500) (1,500) $15.94-$20.22
Forfeited (1,500) (1,500) $15.94-$20.22
- - -------------------------------------------------------------------------
Outstanding at April 30,
1992 576,632 408,032
Granted 127,500 --- $27.25
Exercised (6,200) (6,200) $11.19-$19.13
Forfeited (5,400) (1,000) $19.13-$31.50
- - -------------------------------------------------------------------------
Outstanding at April 30,
1993 692,532 400,832
Granted 179,000 --- $23.94
Exercised (5,866) (5,866) $11.19-$19.13
Forfeited (7,566) (1,166) $19.13-$31.50
- - --------------------------------------------------------------------------
Outstanding at April 30,
1994 858,100 393,800
- - --------------------------------------------------------------------------
Exercisable at April 30,
1994 543,335 393,634
- - --------------------------------------------------------------------------
Available for Future Grants
at April 30,
1992 1,219,365 1,387,965
1993 1,097,265 1,388,965
1994 925,831 1,390,131
25
Exhibit 13
Note G: Income Taxes
During 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." This statement requires the use of the
asset and liability approach for financial accounting and reporting of income
taxes. The Company previously accounted for income taxes in conformity with
APB 11. The effect of this change in accounting method was not material to the
financial statements or results of operations.
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. Significant components
of the Company's deferred tax assets and liabilities as of April 30, 1994 and
1993 are as follows:
(Dollars in thousands)
1994 1993
------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Depreciation $ 7,891 $ 7,189
Pension contributions 764 918
Other (each less than 5% of total liabilities) 1,391 1,192
Total Deferred Tax Liabilities 10,046 9,299
------------------------------------------------------------------------------------
Deferred Tax Assets:
Postretirement benefits other than pensions 3,393 2,960
Other employee benefits 2,560 2,133
Foreign net operating loss carryforwards 901 664
Trademarks 863 655
Marketing accruals 571 786
Other (each less than 5% of total assets) 3,921 2,495
------------------------------------------------------------------------------------
Total Deferred Tax Assets 12,209 9,693
Valuation allowance for deferred tax assets (2,265) (1,884)
------------------------------------------------------------------------------------
Net Deferred Tax Assets 9,944 7,809
-------------------------------------------------------------------------------
Net Deferred Tax Liabilities $ 102 $ 1,490
-------------------------------------------------------------------------------
At April 30, 1994, the Company has foreign net operating loss carryforwards
of $2,729,000 for income tax purposes with indefinite expiration dates. The
Company has recorded a valuation allowance related to foreign tax loss carry-
forwards and other foreign deferred tax assets due to the uncertainty of
their realization.
26
Exhibit 13
Significant components of the provision for income taxes are as follows:
(Dollars in thousands)
Year Ended April 30, 1994 1993 1992
- - -----------------------------------------------------------------------------------
Current:
Federal $20,146 $20,413 $18,236
State and Local 3,381 3,513 3,295
Deferred (Credit) (1,302) 145 434
- - -----------------------------------------------------------------------------------
Total income tax expense from operations $22,225 $24,071 $21,965
- - -----------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate and the effective tax
rate follows:
- - -----------------------------------------------------------------------------------
(Dollars in thousands)
- - -----------------------------------------------------------------------------------
Percent of Pretax Income
- - -----------------------------------------------------------------------------------
Year Ended April 30, 1994 1993 1992
- - -----------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 34.0% 34.0%
Increase in income taxes resulting from:
State and local income taxes, net of federal
income tax benefit 4.2 3.8 3.9
Other items 3.0 1.4 1.3
- - -----------------------------------------------------------------------------------
Effective income tax rate 42.2% 39.2% 39.2%
- - -----------------------------------------------------------------------------------
Income taxes paid $22,431 $23,640 $22,744
- - -----------------------------------------------------------------------------------
Note H: Long-Term Debt
In April 1994, the Company replaced its short-term lines of credit with a
three-year $125,000,000 unsecured revolving credit facility. Borrowings under
the revolving credit facility were $48,048,000 at April 30, 1994. Under the new
agreement, the Company is subject to certain covenants and restrictions
relating to current and interest coverage ratios, along with periodic payments
for commitment fees on the unused balance. Interest rates are variable,
primarily based on money market, LIBOR, or prime. The revolving credit
facility expires in 1997 and is extendible at the option of the Company with
the approval of the banks.
27
Exhibit 13
Note I: Leases
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 1994, 1993, and 1992 totaled $9,110,000, $8,552,000, and
$8,513,000, respectively; included therein were cold storage facility rentals,
based on quantities stored, amounting to $5,525,000, $4,538,000, and
$4,708,000, respectively.
Note J: Common Shares
In August 1991, the shareholders of the Company approved Amended Articles of
Incorporation changing the Company's existing Common Shares into Class A Common
Shares and authorizing a new class of non-voting Common Shares, designated as
Class B Common Shares. Subsequently, on September 30, 1991, the Company
distributed one share of the newly created Class B Common Shares for each Class
A Common Share then issued.
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
non-voting, except under certain conditions outlined in the Company's Amended
Articles of Incorporation.