1
Exhibit 13
BUSINESS OF THE COMPANY
The J. M. Smucker Company is an Ohio corporation founded in 1897 and
incorporated in 1921. The Company, generally referred to as Smucker's (a
registered trademark), has approximately 2,600 full-time employees worldwide
and is headquartered in Orrville, Ohio. The Company operates in one industry
- -- the manufacture, distribution, and sale of food products. It markets these
products under a variety of brand names including Smucker's, Mrs. Smith's, Mary
Ellen, Dickinson's, Laura Scudder's, The R. W. Knudsen Family, After The Fall,
Lost Acres, IXL, Double Fruit, and Shirriff. The Company is the U.S. market
leader in the fruit spread, frozen pie, ice cream topping, and natural peanut
butter categories.
In the United States, the Company's products are primarily sold
through brokers to chain, wholesale, cooperative, and independent grocery
accounts and other consumer markets, and to foodservice distributors and chains
including hotels, restaurants, and institutions. Formulated industrial
products such as bakery and fruit fillings are typically sold direct to other
food manufacturers and marketers for inclusion in their products. The
Company's distribution outside the United States is principally in Canada,
Australia, the United Kingdom, and Latin America, although products are also
exported to other countries. International sales represent approximately 11%
of total Company sales.
Historically, the demand for the Company's products has not been
seasonal. However, due to the demand for frozen pies during the Fall and the
Thanksgiving and Christmas holiday seasons, the Company's second and third
quarter financial results are significantly impacted by Mrs. Smith's results
during those periods.
2
Five Year Summary of Selected Financial Data
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Year Ended April 30, 1995 1994 1993 1992 1991
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(Dollars in Thousands, except per share data)
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Statement of Income:
Net sales $ 628,279 $485,736 $462,160 $454,379 $425,176
Income before cumulative effect
of change in accounting method 36,303 30,498 37,399 34,118 31,744
Net income 36,303 30,498 32,945 34,118 31,744
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Financial Position:
Long-term debt 67,100 48,558 887 3,827 4,267
Total assets 421,017 378,641 294,811 277,768 252,429
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Other Data:
Per Common Share:
Income before cumulative effect
of change in accounting method 1.25 1.05 1.27 1.16 1.07
Net income 1.25 1.05 1.12 1.16 1.07
Dividends declared per Common Share:
Class A .505 0.47 0.43 0.39 0.35
Class B .505 0.47 0.43 0.39 0.35
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Fiscal year 1995 results include the impact of acquisitions as discussed in
Note C. Certain prior year amounts have been reclassified to conform to
current year classifications.
3
Summary of Quarterly Results of Operations
The following is a summary of unaudited quarterly results of operations for the
years ended April 30, 1995 and 1994.
Net Income
per
Quarter Net Gross Net Common
Ended Sales Profit Income Share
- -------------------------------------------------------------------------------------
1995 July 31 $144,347 $49,927 $ 9,215 $ 0.32
October 31 184,339 63,568 12,326 0.42
January 31 157,348 56,748 8,689 0.30
April 30 142,245 47,023 6,073 0.21
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1994 July 31 $112,166 $41,532 $ 8,907 $ 0.31
October 31 130,974 47,030 10,422 0.35
January 31 115,616 40,908 7,387 0.26
April 30 126,980 44,968 3,782(1) 0.13 (1)
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<FN>
(1) Includes charge of $2.3 million ($.08 per share) relating to the write-off
of goodwill associated with a foreign subsidiary.
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 26, 1995 was 7,457 and 4,991, respectively.
Class A Common Shares Class B Common Shares
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Quarter Ended High Low Dividends Quarter Ended High Low Dividends
- ------------------------------------------------------------------------------------------------------
1995 July 31 $25.50 $22.125 $ 0.125 July 31 $22.50 $20.875 $0.125
October 31 24.50 22.875 0.125 October 31 21.75 20.875 0.125
January 31 25.00 22.00 0.125 January 31 22.75 21.12 0.125
April 30 23.75 20.75 0.130 April 30 22.375 18.875 0.130
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1994 July 31 $27.00 $21.50 $0.115 July 31 $24.625 $20.00 $ 0.115
October 31 25.25 20.50 0.115 October 31 23.125 19.375 0.115
January 31 25.50 20.75 0.115 January 31 23.00 20.125 0.115
April 30 25.50 21.75 0.125 April 30 22.75 21.25 0.125
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4
Management's Discussion and Analysis
Results of Operations
Comparison of 1995 with 1994
Sales in fiscal 1995 reached a record level of $628,279,000, representing a
29% increase over fiscal 1994. The Company's recent acquisitions accounted
for over 90% of the increase, with Mrs. Smith's alone being responsible for
nearly 80% of the total. All of the Company's business areas realized sales
increases over last year, with the Foodservice and Industrial areas achieving
the largest percentage improvement. In the International area, sales were up
over 17% with approximately one-half of the increase resulting from the
inclusion of a full year of the jam and jelly business in Canada that was
acquired from Culinar, Inc. in July 1993. Other factors affecting the
International area results included the addition of Mrs. Smith's pies sales in
Canada; growth in Latin American markets; and the favorable impact of exchange
rates between the Australian and U.S. dollars. The financial results at
Elsenham Quality Foods fell short of management's expectations again in fiscal
1995 despite ongoing efforts to generate new business opportunities.
Management will give serious consideration during fiscal 1996 to the future
viability of this business.
Earnings in fiscal 1995 increased nearly 20% as earnings per share rose from
$1.05 to $1.25. Approximately one-half of the growth in earnings came from the
Company's existing businesses and the remainder was contributed by the Mrs.
Smith's business. Due to the seasonal nature of the Mrs. Smith's business, its
contribution to earnings was heavily concentrated in the second and third
quarters of the year. Although the Company's acquisitions contributed
significantly to the sales increase, margins on those businesses are currently
below the corporate average. As a result, the Company's gross profit margin
declined from 35.9% to 34.6%. Higher costs on certain key fruits and
packaging materials also contributed to an increase in the cost of products
sold. Selling, distribution, and administrative costs increased at a lesser
rate than sales. This was largely the result of being able to absorb the
acquisitions during the year while keeping the increase in corporate
administrative costs below the percentage increase in sales. Marketing and
selling expenses increased at a level consistent with the percentage increase
in sales.
5
Beginning with its acquisition of Mrs. Smith's in March 1994 and continuing
throughout fiscal 1995, the Company borrowed against its revolving credit line
to finance both acquisitions and seasonal procurement of fruit inventories.
The resulting increase in the long-term debt balance and, to a lesser extent,
the increase in interest rates during the year caused an increase in interest
expense over last year. The Company partially offset the impact of the higher
interest expense with income earned from other sources, primarily the
inclusion of non-operating revenue from the Mrs. Smith's business and improved
profitability on sales of excess frozen fruit inventories.
The Company's effective tax rate decreased from 42.2% in fiscal 1994 to 40.9%
in 1995. The higher rate in 1994 was primarily due to the write-off of
goodwill which was not deductible for tax purposes. State and local taxes also
decreased in fiscal 1995 as a percent of income before tax.
The Company continued, during fiscal 1995, to maintain the largest share of the
fruit spread market despite increased competitive activity by both branded and
private label marketers. The Company's share of the market remained at more
than twice the nearest branded competitor, but it was slightly lower than the
share at the end of fiscal 1994. In response, the Company is executing
several new marketing initiatives during fiscal 1996 in an effort to resume its
share of market growth.
6
Comparison of 1994 with 1993
The Company posted record sales in 1994 of $485,736,000, an increase of 5% over
the 1993 level of $462,160,000. 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 in fiscal 1994 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 fruit
spreads and peanut butter were somewhat offset by modest price increases on
assorted items and increased tonnage of Simply Fruit and Low Sugar fruit
spreads, 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's Coolers in the second half of 1994 helped build
momentum and permitted the beverage business to realize a modest increase over
fiscal 1993.
Sales within the International area were up nearly 50% over 1993 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 fruit spread business in Mexico and other Latin
American 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.
7
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. 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 fruit spreads. 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 fiscal 1993.
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 at Mrs. Smith's 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.
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. Additional marketing expenses were incurred in support of both
Smucker's and Mrs. Smith's products. The write-off of the Elsenham goodwill
also contributed to the overall increase in costs.
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 fiscal 1993. 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. 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.
8
Capital Resources and Liquidity
The Company's financial position remains strong as cash provided from
operations was a positive $39,076,000. Utilizing a combination of funds
generated from operations and borrowings against the Company's revolving
credit line, the Company financed its acquisitions, capital expenditures, and
dividend payments. The Company's capital expenditures in fiscal 1995 were
$18,963,000. Dividends declared on all Common Shares rose 8% to $14,679,000,
or $.505 per share for the year.
The Company's long-term debt balance at the end of the year increased
$18,542,000 over last year. Most of the increase was due to the acquisition of
the After The Fall beverage business and the Laura Scudder's brand of natural
peanut butter. Long-term borrowings were $67,100,000 at April 30, 1995.
During fiscal 1995, the Company experienced an unusual number of business
interruptions, most notably a widespread power outage in Orrville, Ohio, and
damage to its Watsonville, California, facility resulting from severe flooding
in March. Although the incidents were serious, the Company did not experience
any lengthy interruption to its overall manufacturing operations nor were its
fiscal 1995 operating results significantly impacted. A substantial majority
of the losses incurred were insured.
The procurement of fruit inventories during the summer months and the seasonal
nature of the Mrs. Smith's business will require a substantial increase in debt
balances during the first two quarters of fiscal 1996. However, the Company
expects that cash flows generated from operations during the second half of the
year will be adequate to reduce the seasonal increases in the debt balance and
expects the balances at the end of fiscal 1996 to be comparable to fiscal 1995
year end levels, assuming that there are no additional acquisitions or other
extraordinary cash requirements and that results from operations are at least
comparable to the fiscal 1995 results. Capital expenditures are planned at
approximately $20,500,000 for 1996 as the Company expands its production
capabilities in Ste-Marie, Quebec, and focuses on the continued modernization
of its other facilities. The Company expects the combination of cash provided
from operations and borrowings against its revolving credit agreement to be
sufficient to meet future cash requirements in fiscal 1996.
9
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, 1995 and 1994, and the related statements of
consolidated income, shareholders' equity and cash flows for each of the three
years in the period ended April 30, 1995. 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 following consolidated financial statements present fairly,
in all material respects, the consolidated financial position of The J. M.
Smucker Company at April 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes E and I to the consolidated financial statements, in 1993
the Company changed its methods of accounting for postretirement benefits other
than pensions and income taxes.
Ernst & Young LLP
Akron, Ohio
June 8, 1995
10
Statements of Consolidated Income
The J. M. Smucker Company
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(Dollars in thousands, except per share data)
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Year Ended April 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
Net Sales $628,279 $485,736 $462,160
Cost of products sold 411,013 311,298 295,000
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Gross Profit 217,266 174,438 167,160
Selling, distribution, and administrative expenses 154,767 124,039 106,077
- -------------------------------------------------------------------------------------------------------------------
Operating Income 62,499 50,399 61,083
Interest income 770 965 1,196
Other income (expense) - net 2,626 1,869 (431)
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65,895 53,233 61,848
Interest expense 4,515 510 378
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Income Before Income Taxes and Cumulative
Effect of Change in Accounting Method 61,380 52,723 61,470
Income Taxes 25,077 22,225 24,071
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Income Before Cumulative Effect of Change in
Accounting Method 36,303 30,498 37,399
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Cumulative effect of change in accounting method
for postretirement benefits other than pensions -
net of tax benefit of $2,704 --- --- (4,454)
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Net Income $ 36,303 $ 30,498 $ 32,945
- -------------------------------------------------------------------------------------------------------------------
Income per Common Share Before Cumulative
Effect of Change in Accounting Method $ 1.25 $ 1.05 $ 1.27
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting method --- --- (.15)
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Net Income per Common Share $ 1.25 $ 1.05 $ 1.12
===================================================================================================================
See notes to consolidated financial statements
11
Consolidated Balance Sheets
The J. M. Smucker Company
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(Dollars in Thousands)
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Assets April 30,
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1995 1994
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Current Assets
Cash and cash equivalents $ 11,244 $ 14,059
Trade receivables, less allowance for doubtful
accounts of $ 475 ($419 in 1994) 53,600 47,828
Inventories:
Finished products 49,825 42,463
Raw materials, containers, and supplies 60,849 60,773
- ----------------------------------------------------------------------------------------------------------
110,674 103,236
Other current assets 16,318 6,562
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Total Current Assets 191,836 171,685
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Property, Plant, and Equipment
Land and land improvements 14,260 13,533
Buildings and fixtures 72,079 68,362
Machinery and equipment 144,141 130,403
Construction in progress 5,605 6,486
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236,085 218,784
Accumulated depreciation (95,960) (81,278)
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Total Property, Plant, and Equipment 140,125 137,506
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Other Noncurrent Assets
Goodwill 40,621 21,833
Trademarks and patents 40,019 38,328
Other assets 8,416 9,289
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Total Other Noncurrent Assets 89,056 69,450
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$421,017 $378,641
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12
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(Dollars in thousands)
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Liabilities and Shareholders' Equity April 30,
- ------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 40,527 $ 37,322
Notes payable -0- 4,327
Salaries, wages, and additional compensation 10,235 9,604
Accrued marketing and merchandising 14,260 16,209
Income taxes 3,858 2,124
Dividends payable 3,816 3,639
Other current liabilities 7,147 9,970
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Total Current Liabilities 79,843 83,195
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Noncurrent Liabilities
Long-term debt 67,100 48,558
Postretirement benefits other than pensions 9,803 8,874
Deferred income taxes 5,023 2,469
Other noncurrent liabilities 1,256 1,143
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Total Noncurrent Liabilities 83,182 61,044
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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--14,384,839 in 1995 and 14,360,339 in 1994
(net of 1,827,449 and 1,851,949 treasury shares,
respectively), at stated value 3,596 3,590
Class B - (Non-voting) Authorized--35,000,000 shares;
outstanding--14,778,839 in 1995, and 14,749,839 in 1994
(net of 1,433,449 and 1,462,449 treasury shares,
respectively), at stated value 3,695 3,687
Additional capital 10,963 9,261
Retained income 254,854 233,420
Less:
Deferred compensation (1,292) (576)
Amount due from ESOP Trust (10,441) (10,670)
Currency translation adjustment (3,383) (4,310)
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 257,992 234,402
- ------------------------------------------------------------------------------------------------------------------
$421,017 $378,641
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<FN>
See notes to consolidated financial statements
13
Statements of Consolidated Cash Flows
The J. M. Smucker Company
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(Dollars in thousands)
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Year Ended April 30, 1995 1994 1993
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Operating Activities
Net income $36,303 $ 30,498 $ 32,945
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting method --- --- 4,454
Depreciation 16,185 12,739 11,137
Amortization 3,972 2,639 1,915
Write-off of goodwill --- 2,326 ---
Deferred income taxes (272) (1,302) 145
Changes in assets and liabilities:
Trade receivables (4,002) (6,097) 798
Inventories (3,535) 500 6,059
Other current assets (7,129) 188
Accounts payable and accrued items (3,152) 12,780 (216)
Other - net 706 901 63
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Net Cash Provided by Operating Activities 39,076 55,172 56,982
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Investing Activities
Businesses acquired - net of cash (28,780) (100,195) (2,098)
Additions to property, plant, and equipment (18,963) (18,707) (21,004)
Proceeds from the sale of property, plant, and
equipment 580 691 840
Other - net 724 (572) (3,353)
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Net Cash Used for Investing Activities (46,439) (118,783) (25,615)
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 18,542 48,048 ---
Reduction in long-term debt --- (377) (440)
Purchase of Common Shares (195) (2,210) (2,111)
Net amount received from ESOP 229 183 250
Dividends paid (14,503) (13,360) (12,364)
Other 348 (4,799) (2,500)
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Net Cash Provided by (Used for) Financing Activities 4,421 27,485 (17,165)
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 127 (260) (25)
Net (decrease) increase in cash and cash equivalents (2,815) (36,386) 14,177
Cash and cash equivalents at beginning of year 14,059 50,445 36,268
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Cash and Cash Equivalents at End of Year $11,244 $ 14,059 $ 50,445
- ----------------------------------------------------------------------------------------------------------------------
<FN>
( ) Denotes use of cash
See notes to consolidated financial statements
14
Statements of Consolidated Shareholders' Equity
The J. M. Smucker Company
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(Dollars in thousands)
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Common Shares Deferred Amount due Currency Share-
------------------ Additional Retained Compen- From ESOP Translation holders'
Class A Class B Capital Income sation Trust Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------------------
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 (12,620) (12,620)
share
Other 607 250 (2,602) (1,745)
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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 (13,642) (13,642)
share
Other 219 183 (1,969) (1,567)
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Balance at April 30, 1994 $3,590 $3,687 $ 9,261 $233,420 $ (576) $(10,670) $(4,310) $234,402
Net income 36,303 (195) 36,303
Purchase of treasury shares (2) (3) (190) (195)
Stock plans 8 8 1,337 (716) 637
Dividends declared-$.505 a (14,679) (14,679)
share
Other 368 229 927 1,524
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- ------------------------------------------------------------------------------------------------------------------------------------
Balance at April 30,1995 $3,596 $3,695 $10,963 $254,854 $(1,292) $(10,441) $(3,383) $257,992
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
15
Notes to Consolidated Financial Statements
The J. M. Smucker Company
Fiscal Years Ended April 30, 1995, April 30, 1994, and April 30, 1993
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
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 $12,765,000 and
$11,169,000 higher than reported at April 30, 1995 and 1994, 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. The Company continually evaluates whether events or circumstances
have occurred which would indicate the carrying value may not be recoverable or
the useful life warrants revision. When factors indicate that goodwill and
other intangible assets should be evaluated for possible impairment, the
Company analyzes the future recoverability of the asset using an estimate of
the related undiscounted future cash flows of the business, and recognizes any
adjustment to its carrying value on a current basis. Accumulated amortization
of goodwill and intangible assets at April 30, 1995 and 1994, was $13,902,000
and $10,228,000, 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.
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.
Advertising Expense: Advertising costs are expensed as incurred.
Advertising expense was $12,953,000, $12,066,000 and $11,080,000 in 1995, 1994,
and 1993, respectively.
17
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:
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(Dollars in thousands)
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Year Ended April 30, 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales:
United States $562,187 $429,272 $424,311
Foreign 66,092 56,464 37,849
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Total net sales $628,279 $485,736 $462,160
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Operating income (loss):
United States $ 91,900 $ 80,630 $ 87,176
Foreign 2,123 (1,216) (1) 752
- ------------------------------------------------------------------------------
94,023 79,414 87,928
Corporate expenses (31,524) (29,015) (26,845)
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Total operating income $ 62,499 $ 50,399 $ 61,083
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Identifiable assets:
United States $359,756 $326,042 $259,302
Foreign 61,261 52,599 35,509
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Total assets $421,017 $378,641 $294,811
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<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 was no material amount of
transfers between geographic areas.
18
Note C: Acquisitions
In December 1994, the Company acquired the Laura Scudder's natural peanut
butter business from BAMA Foods, Inc., a wholly-owned subsidiary of Welch
Foods, Inc., for cash. In July 1994, the Company completed its cash
acquisition of substantially all of the assets of After The Fall Products,
Inc., located in Brattleboro, Vermont. The acquired business consisted
primarily of the sale of natural juices and juice beverages under the After The
Fall brand. Subsequent to the acquisition, the Company transferred production
of After The Fall products to its beverage production facility in Havre de
Grace, Maryland.
In conjunction with these acquisitions, the Company purchased $5,250,000 and
$17,746,500 of intangible assets, respectively, consisting primarily of
goodwill. The Company plans to amortize the intangible assets over 40 years
using the straight-line method.
In March 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. This business,
located in Pottstown, Pennsylvania, manufactures and markets branded frozen
pies 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
those assets 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.
All of the Company's 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.
19
Individually, the acquisition of the After the Fall, Laura Scudder's and
Culinar businesses 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,
- ------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1994 1993
- ------------------------------------------------------------------------------------------
Net Sales $601,000 $609,000
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.
20
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:
------------------------------------------------------------------------------------------------
Year Ended April 30,
------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 1,640 $1,256 $1,168
Interest cost on projected benefit obligation 3,404 3,086 2,564
Actual return on plan assets (2,640) (2,876) (2,204)
Deferred loss (927) (722) (1,253)
Net amortization and deferral 386 244 (107)
------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,863 $ 988 $ 168
------------------------------------------------------------------------------------------------
21
The following sets forth in the aggregate the funded status and amounts
recognized in the Company's consolidated balance sheets for all
Company-administered domestic pension plans:
- -------------------------------------------------------------------------------------------------------
April 30,
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated benefit obligation:
Vested benefits $ 35,718 $34,444
Non-vested benefits 2,324 2,312
- -------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 38,042 $36,756
- -------------------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 44,525 44,012
Plan assets at fair value 41,839 42,520
- -------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (2,686) (1,492)
Unrecognized prior service cost 5,131 5,166
Unrecognized net gain from past experience (582) (338)
Unamortized net asset at transition (1,595) (1,686)
- -------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 268 $ 1,650
- -------------------------------------------------------------------------------------------------------
The expected long-term rate of return on plan assets was 9% for 1995,
1994, and 1993. 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, 1995 and 1994. The discount rate was 8% and 7.5% in
1995 and 1994, respectively, while the rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations was 5.5% and 5.75%. 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 $6,215,000 and
$6,230,000 in 1995 and 1994, respectively.
The Company also charged to operations approximately $2,169,000,
$675,000, and $606,000 in 1995, 1994, and 1993, 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.
22
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, and their covered dependents and beneficiaries.
These plans are contributory, with retiree contributions adjusted periodically,
and contain other cost-sharing features, such as deductibles and coinsurance.
Covered employees generally are eligible for these benefits when they have
reached age 55 and attained 10 years of service.
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.
23
Net periodic postretirement benefit expense related to these plans for 1995,
1994, and 1993 included the following components:
----------------------------------------------------------------------------------------
Year Ended April 30,
----------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
----------------------------------------------------------------------------------------
Service cost $ 472 $ 421 $ 362
Interest cost 662 737 591
Net amortization and deferral --- 13 ---
----------------------------------------------------------------------------------------
Net period postretirement benefit cost $1,134 $1,171 $ 953
----------------------------------------------------------------------------------------
The following table sets forth the combined status of the plans as recognized
in the Consolidated Balance Sheets at April 30, 1995 and 1994:
----------------------------------------------------------------------------------------
April 30,
----------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
----------------------------------------------------------------------------------------
Accumulated benefit obligation:
Retirees $2,833 $3,407
Fully eligible active participants 1,319 1,351
Other active participants 4,549 5,045
Unrecognized actuarial gain (loss) 1,102 (929)
----------------------------------------------------------------------------------------
Postretirement benefits other than pensions $9,803 $8,874
----------------------------------------------------------------------------------------
The discount rate assumption used to determine the actuarial present value of
the accumulated postretirement benefit obligation was 8% in 1995 and 7.5% in
1994. For 1996, the assumed health care cost trend rates were 10.5% for
participants under age 65 and 8.5% for participants age 65 or older. Both
rates were assumed to decrease gradually to 5.5% in the year 2003. The health
care cost trend rate assumption has a significant effect on the amount of the
obligation and periodic cost reported. A one percent annual increase in the
assumed cost trend rate in each year would increase the accumulated
postretirement benefit obligation as of April 30, 1995, by $1,428,000 and the
net periodic postretirement benefit cost for the year by $263,000.
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 net
periodic postretirement benefit costs, totaled $1,431,000, $1,436,000, and
$1,356,000 in 1995, 1994, and 1993, respectively.
24
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. ESOP loans bear interest at 1/2% over
prime and are payable as shares are allocated to participants. Contributions
to the plan are made annually in amounts sufficient to fund ESOP debt
repayment. Dividends on unallocated shares are used to reduce expense and were
$406,000, $389,000, and $336,000 in 1995, 1994, and 1993, respectively. The
principal payments received from the ESOP in 1995, 1994, and 1993 were
$229,000, $183,000, and $250,000, respectively.
Effective May 1, 1994, the Company adopted Statement of Position
93-6 (SOP 93-6), Employers' Accounting for Employee Stock Ownership Plans.
This statement requires that compensation expense be measured based upon the
fair value of shares committed to be released to plan participants. Under the
"grandfather" provision of SOP 93-6, the Company did not apply the statement to
shares purchased prior to the transition date of December 31, 1992. Since all
shares currently held by the ESOP were acquired prior to 1993, the Company will
continue to recognize future compensation expense using the cost basis. At
April 30, 1995, the ESOP held 805,048 unallocated shares consisting of 324,124
Class A and 480,924 Class B Common Shares. All shares held by the ESOP were
considered outstanding in earnings per share calculations for all periods
presented.
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 1995, 1994, and 1993 were $1,017,000, $787,000,
and $736,000, respectively.
25
Restricted Stock: The Restricted Stock Bonus Plan provides for issuance
of Common Shares to key employees. There are 74,600 Class A and 117,600 Class
B Common Shares available for issuance under the plan at April 30, 1995.
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. In fiscal
1995, an award of 31,000 shares of Class A and Class B Common Shares was made
while 43,000 Class A Common Shares were awarded in 1993. There were no awards
made during fiscal 1994.
26
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:
- ---------------------------------------------------------------------------------------------
Option Price
Common Shares Per Share
- ---------------------------------------------------------------------------------------------
Class A Class B
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
Granted 87,500 87,500 $21.50-$23.69
Exercised --- ---
Forfeited --- ---
- ---------------------------------------------------------------------------------------------
Outstanding at April 30, 1995 945,600 481,300
Exercisable at April 30, 1995 698,268 393,800
Available for Future Grants
at April 30,
1993 1,097,265 1,388,965
1994 925,831 1,390,131
1995 838,331 1,302,631
- ---------------------------------------------------------------------------------------------
27
Note G: Long-Term Debt
The Company has a three-year, $125,000,000, unsecured revolving credit facility
with certain banks. Under the agreement, the Company is subject to certain
covenants and restrictions relating to current and interest coverage ratios,
along with periodic payments for commitment fees of .12% per annum on the
unused balance. Interest rates are variable, primarily based on money market,
LIBOR, or prime. The revolving credit facility expires in 1998 and is
extendible at the option of the Company with the approval of the banks.
Borrowings under the revolving credit facility were $67,100,000 and $48,048,000
at April 30, 1995 and 1994, respectively. Interest paid on all borrowings
approximated total interest expense in each of the three years ended April 30,
1995, 1994, and 1993.
Note H: 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 1995, 1994, and 1993
totaled $12,897,000, $9,110,000, and $8,552,000, respectively; included therein
were cold storage facility rentals, based on quantities stored, amounting to
$7,701,000, $5,525,000, and $4,538,000, respectively.
Note I: Income Taxes
During fiscal 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 at April 30, 1995 and 1994
are as follows:
28
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994
- -------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Depreciation $9,492 $ 7,891
Goodwill 949 20
Pension contributions 308 764
Other (each less than 5% of total liabilities) 1,767 1,371
- -------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 12,516 10,046
Deferred Tax Assets:
Postretirement benefits other than pensions 3,835 3,393
Other employee benefits 3,977 2,560
Foreign net operating loss carryforwards 1,363 901
Trademarks 1,009 863
Marketing accruals 1,821 571
Other (each less than 5% of total assets) 3,386 3,921
- -------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 15,391 12,209
Valuation allowance for deferred tax assets (2,660) (2,265)
- -------------------------------------------------------------------------------------------------
Net Deferred Tax Assets 12,731 9,944
- -------------------------------------------------------------------------------------------------
Net Deferred Tax (Assets) Liabilities $ (215) $ 102
- -------------------------------------------------------------------------------------------------
At April 30, 1995, the Company has foreign net operating loss carryforwards of
$4,090,000 for income tax purposes with various expiration dates. The Company
has recorded a valuation allowance related to foreign tax loss carryforwards
and other foreign deferred tax assets due to the uncertainty of their
realization.
29
Significant components of the provision for income taxes are as follows:
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
Year Ended April 30, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Current:
Federal $21,910 $20,146 $20,413
State and Local 3,439 3,381 3,513
Deferred (Credit) (272) (1,302) 145
- -----------------------------------------------------------------------------------------------------------
Total income tax expense from operations $25,077 $22,225 $24,071
- -----------------------------------------------------------------------------------------------------------
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, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 34.0%
Increase in income taxes resulting from:
State and local income taxes, net of
federal income tax benefit 3.6 4.2 3.8
Other items 2.3 3.0 1.4
- --------------------------------------------------------------------------------------------------------------
Effective income tax rate 40.9% 42.2% 39.2%
- --------------------------------------------------------------------------------------------------------------
Income taxes paid $22,521 $22,431 $23,640
- --------------------------------------------------------------------------------------------------------------
Note J: Common Shares
The Company's Amended Articles of Incorporation provide that but for certain
exceptions, those acquiring the Company's Class A Common Shares will be
entitled to cast one vote per share on matters requiring shareholder approval
until they have held their shares for four years, after which time they will be
entitled to cast ten votes per share. The Company's Class B Common Shares are
non-voting, except under certain conditions outlined in the Company's Amended
Articles of Incorporation.