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No. 1 of 11 Pages
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-5111
-----------
THE J. M. SMUCKER COMPANY
Ohio 34-0538550
- ---------------------- ----------------------
State of Incorporation IRS Identification No.
STRAWBERRY LANE
ORRVILLE, OHIO 44667
(330) 682-3000
The Company has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
The Company had 14,411,399 Class A Common Shares and 14,741,653 Class B Common
Shares outstanding on October 31, 1997.
The Exhibit Index is located at Sequential Page No. 11.
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No. 2
PART I. FINANCIAL INFORMATION
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Item 1. Financial Statements
--------------------
Three Months Ended Six Months Ended
October 31, October 31,
--------------------------------- ---------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
Net sales $ 145,187 $ 138,296 $ 292,576 $ 267,925
Cost of products sold 95,974 94,157 191,967 180,040
------------ ------------ ------------ ------------
49,213 44,139 100,609 87,885
Selling, distribution, and
administrative expenses 35,346 30,563 70,736 61,080
------------ ------------ ------------ ------------
13,867 13,576 29,873 26,805
Other income (expense)
Interest income 482 550 1,180 987
Interest expense (85) (669) (90) (1,419)
Other - net 174 (126) 300 (211)
------------ ------------ ------------ ------------
Income before income taxes 14,438 13,331 31,263 26,162
Income taxes 5,836 5,513 12,688 10,855
============ ============ ============ ============
Net Income $ 8,602 $ 7,818 $ 18,575 $ 15,307
============ ============ ============ ============
Net income per Common Share* $ .30 $ .26 $ .64 $ .52
============ ============ ============ ============
Dividends declared on Class A and Class B
Common Shares $ .13 $ .13 $ .26 $ .26
============ ============ ============ ============
* Computed on the weighted average
number of Class A Common Shares and
Class B Common Shares outstanding,
namely 29,143,200 29,157,488 29,155,546 29,161,628
============ ============ ============ ============
See notes to condensed consolidated financial statements
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No. 3
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31,1997 April 30,1997
(Unaudited) (Audited)
----------- ---------
(Dollars in Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,822 $ 24,091
Trade receivables, less allowances 53,293 48,140
Inventories:
Finished products 38,898 39,054
Raw materials, containers, and supplies 79,069 55,052
--------- ---------
117,967 94,106
Other current assets 10,140 12,135
--------- ---------
Total Current Assets 193,222 178,472
PROPERTY, PLANT, AND EQUIPMENT
Land and land improvements 14,034 13,820
Buildings and fixtures 76,602 74,709
Machinery and equipment 174,816 170,160
Construction in progress 14,758 6,881
--------- ---------
280,210 265,570
Less allowances for depreciation (133,334) (125,935)
--------- ---------
Total Property, Plant and Equipment 146,876 139,635
OTHER NONCURRENT ASSETS
Intangible assets 43,417 45,393
Other assets 22,151 21,273
--------- ---------
Total Other Noncurrent Assets 65,568 66,666
--------- ---------
$ 405,666 $ 384,773
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,338 $ 36,582
Other current liabilities 49,687 35,434
--------- ---------
Total Current Liabilities 87,025 72,016
NONCURRENT LIABILITIES
Other noncurrent liabilities 21,477 20,866
SHAREHOLDERS' EQUITY
Class A Common Shares 3,603 3,606
Class B Common Shares (Non-Voting) 3,685 3,696
Additional capital 14,798 12,439
Retained income 291,227 284,605
Less:
Deferred compensation (2,517) (1,396)
Amount due from ESOP (9,787) (10,027)
Currency translation adjustment (3,845) (1,032)
--------- ---------
Total Shareholders' Equity 297,164 291,891
--------- ---------
$ 405,666 $ 384,773
========= =========
See notes to condensed consolidated financial statements
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No. 4
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
October 31,
-------------------------
1997 1996
---- ----
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,575 $ 15,307
Adjustments (9,870) (18,710)
-------- --------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 8,705 (3,403)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets of discontinued --- 33,997
operations
Additions to property, plant, and equipment (17,359) (4,307)
Proceeds from the sale of property, plant, and
equipment 244 261
Other - net 587 ---
-------- --------
NET CASH (USED FOR) PROVIDED BY
INVESTING ACTIVITIES (16,528) 29,951
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in long-term debt --- (24,600)
Proceeds from short-term debt - net 7,259 ---
Purchase of common shares (3,308) ---
Dividends paid (7,563) (7,566)
Other - net 60 (21)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (3,552) (32,187)
Cash flows used in continuing operations (11,375) (5,639)
Cash flows used in discontinued operations --- (277)
Effect of exchange rate changes (894) 63
-------- --------
Net decrease in cash and cash equivalents (12,269) (5,853)
Cash and cash equivalents at beginning of period 24,091 17,647
-------- --------
Cash and cash equivalents at end of period $ 11,822 $ 11,794
======== ========
( ) Denotes use of cash
See notes to condensed consolidated financial statements
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No. 5
THE J. M. SMUCKER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
---------------------
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the six-month period ended October 31, 1997, are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1998. For further information, reference is made to the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended April 30, 1997.
Note B - Common Shares
-------------
At October 31, 1997, 35,000,000 Class A Common Shares and 35,000,000
Class B Common Shares were authorized. At October 31, 1997, there were
14,411,399 and 14,741,653 outstanding shares of Class A Common and Class B
Common, respectively, while 14,423,126 Class A and 14,785,203 Class B Common
Shares were outstanding at April 30, 1997. Outstanding shares of each class are
shown net of 1,800,889 Class A and 1,470,635 Class B treasury shares at October
31, 1997, and 1,789,162 Class A and 1,427,085 Class B treasury shares at April
30, 1997.
Note C - Income Per Share
----------------
Income per share has been computed based on the weighted average number
of shares of the Class A and Class B Common Shares considered outstanding during
the period.
Note D - Accounting Reclassifications
----------------------------
Certain prior year amounts have been reclassified to conform to current
year classifications.
Note E - Software Costs
--------------
The Company capitalizes significant costs associated with the
development and installation of internal use software. Amounts deferred are
amortized over the estimated useful lives of the software beginning with the
project's completion. Net deferred internal use software costs as of October 31,
1997 and April 30, 1997 were $9,840,000 and $4,976,000, respectively.
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No. 6
Note F - Recently Issued Accounting Standards
------------------------------------
In the first half of calendar 1997, the Financial Accounting Standards
Board issued final statements that change the method for calculating and
reporting earnings per share (EPS), that require the disclosure of total
comprehensive income, and that change the method for determining and reporting
business segment information. The Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, in the third quarter of
fiscal 1998. Basic EPS will be consistent with previously reported EPS and the
Company does not expect diluted EPS to be materially different. The Company will
adopt the disclosure requirements of SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, in fiscal 1999.
................................................................................
Item 2. Management's Discussion and Analysis
------------------------------------
This discussion and analysis deals with comparisons of material changes
in the condensed, consolidated financial statements for the three-month and
six-month periods ended October 31, 1997 and 1996, respectively.
Results of Operations
- ---------------------
Sales for the second quarter ended October 31, 1997, were $145,187,000,
up 5% over the same period last year. The Consumer, Industrial, Foodservice, and
Specialty business areas all reported sales increases for the quarter, with the
Consumer and Industrial areas contributing more than 95% of the overall
increase.
In the Consumer area, the majority of the sales increase was the result
of growth in sales of fruit spreads in the grocery and mass retail markets,
including sales of "Kraft" brand products. The "Kraft" retail fruit spreads
business was acquired during the fourth quarter of fiscal 1997. Sales of dessert
toppings and "Goober" products also were up over the previous year. In the
Industrial area, sales growth came from a combination of new and existing
products in the bakery and yogurt categories.
In the International area, profit contribution was up but sales were
down slightly, due primarily to the impact of a strong U. S. dollar versus
Australian and Canadian currencies. The Company's consumer market businesses in
Australia and Canada remain strong, with share of market gains achieved in both
countries.
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No. 7
Sales for the first six months of the fiscal year were $292,576,000,
compared to $267,925,000 during the first half of last year. The Consumer and
Industrial areas accounted for the majority of the growth. The weakness of the
Australian and Canadian currencies against the U.S. dollar adversely affected
International sales results for the first six months as a whole as well as
during the second quarter.
Net income for the second quarter was $8,602,000, or $.30 per share,
compared to net income of $7,818,000, or $.26 per share, for the same period
last year. Year-to-date earnings per share were $.64 per share compared to $.52
per share for the same period last year.
Cost of products sold decreased from last year as a percentage of net
sales for both the second quarter and the first six months of fiscal 1998. The
decrease was primarily due to lower costs for certain raw materials and costs
savings resulting from the implementation of operations initiatives identified
during last fiscal year as part of the Company's Appleseed strategic project.
The Company expects favorable margin comparisons for the remainder of the fiscal
year.
Selling, distribution, and administrative costs increased at a greater
percentage than sales during the second quarter and year-to-date due mostly to
an increase in marketing expenditures and corporate administrative expenses. The
increase in marketing expenses was primarily due to additional programs in
support of retail fruit spreads in the Consumer business area, and the majority
of the increase in administrative costs was related to the Company's information
technology reengineering project.
The Company's interest expense decreased significantly in the second
quarter and year-to-date as compared to the prior year due to the repayment
during fiscal 1997 of all long-term debt. The Company's improved cash position
resulted in the increase in interest income for the first half of the year.
In connection with the information technology project, the $8 million
in annual savings that the Company previously had estimated would be realized
from the project upon full implementation has been revised upward to $10
million. Just under half of this amount is expected to be realized as the core
components of the new software system are installed over the next three years.
The remainder of the savings will become available thereafter as additional
components of the new system are developed and installed. The installation of
the new system is expected to provide additional "soft" benefits beyond the $10
million, although it is premature to try to quantify those at this time. The new
system will provide substantial assistance in meeting the so-called "year 2000"
computer system problems and no significant difficulties are anticipated in
preparing the Company's information systems for the turn of the century.
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No. 8
Financial Condition - Liquidity and Capital Resources
- -----------------------------------------------------
The financial position of the Company remains strong despite the
reduction in cash and cash equivalents of $12,269,000 during the first half of
the year. Historically, the first half of the year results in a net cash outflow
due to expenditures required for the seasonal procurement of fruit inventories.
In addition to the fruit purchases, other significant uses of cash during the
first six months of the year were capital expenditures, which included
capitalized software and consulting costs, and the payment of dividends. The
Company also repurchased approximately 150,000 shares of Class A and Class B
Common shares during the first half of the year as part of its previously
announced stock repurchase program.
During the second quarter, the Company borrowed against existing lines
of credit to meet cash requirements and at October 31, 1997, the Company had
$7,259,000 outstanding in short-term debt. Assuming there are no additional
acquisitions or other investments requiring cash outlays and that the results of
operations are as anticipated, the Company expects cash provided from operations
and borrowings to be sufficient to meet all cash requirements and expects all
short-term borrowing to be repaid by April 30, 1998.
Recently Issued Accounting Standards
- ------------------------------------
In the first half of calendar 1997, the Financial Accounting Standards
Board issued final statements that change the method for calculating and
reporting earnings per share (EPS), that require the disclosure of total
comprehensive income, and that change the method for determining and reporting
business segment information. The Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, in the third quarter of
fiscal 1998. Basic EPS will be consistent with previously reported EPS and the
Company does not expect diluted EPS to be materially different. The Company will
adopt the disclosure requirements of SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, in fiscal 1999.
Certain Forward-Looking Statements
- ----------------------------------
This quarterly report includes certain forward-looking statements that
are based on current expectations and are subject to a number of risks and
uncertainties. Actual results may differ depending on a number of factors
including: the success of the Company's fruit spreads marketing program during
the year; competitive activity, including private label; the mix of products
sold and level of marketing expenditures needed to generate those sales; an
increase in fruit costs or costs of any other significant ingredients; the
ability of the Company to maintain and/or improve sales and earnings of its
non-retail business areas; and the successful implementation of the Company's
information technology project.
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No. 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of shareholders of the Company was held on August
12, 1997. At the meeting, the names of Elizabeth Valk Long, Charles S. Mechem,
Jr., Timothy P. Smucker, and Benjamin B. Tregoe, Jr. were placed in nomination
for the Board of Directors to serve three-year terms ending in 2000. All four
nominees were elected with the results as follows:
Votes For Votes Withheld
------------------ --------------------
Elizabeth Valk Long 54,222,463 623,655
Charles S. Mechem, Jr. 54,254,231 591,887
Timothy P. Smucker 54,306,249 539,869
Benjamin B. Tregoe, Jr. 54,239,901 606,217
The shareholders also voted on the ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors for the 1998 fiscal year. The
measure was approved as follows:
Votes For Votes Against Abstentions
------------------- -------------------- ------------------
54,591,744 104,195 150,179
No broker non-votes were identified with regard to either matter submitted to
the shareholders.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
See the Index of Exhibits that appears on Sequential Page
No. 11 of this report.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were required to be filed
during the quarter for which this report is filed.
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No. 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
December 11, 1997 THE J. M. SMUCKER COMPANY
/s/ Steven J. Ellcessor
-----------------------
BY STEVEN J. ELLCESSOR
Vice President-Administration, Secretary,
and General Counsel
/s/ Richard K. Smucker
-----------------------
AND RICHARD K. SMUCKER
President
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No. 11
INDEX OF EXHIBITS
That are filed with the Commission and
The New York Stock Exchange
Assigned Sequential
Exhibit No. * Description Page No.
- --------------------------------------------------------------------------------
27 Financial data schedules pursuant to Article 5 in
Regulation S-X.
* Exhibits 2, 3, 4, 10, 11, 15, 18, 19, 22, 23, 24, and 99 are either
inapplicable to the Company or require no answer.