1
Exhibit 13
Five-Year Summary of Selected Financial Data
Year Ended April 30,
- ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
(Dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
Statement of Income:
Net sales (1) $565,476 $524,107 $517,832 $503,618 $472,756
Income from continuing operations
before cumulative effect of change in
accounting method 36,348 30,935 29,453 32,461 31,931
Income (Loss) from discontinued
operations (2) --- --- (140) 3,842 (1,433)
Cumulative effect of change in
accounting method (3) (2,958) --- --- --- ---
Net income 33,390 30,935 29,313 36,303 30,498
- ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
Financial Position:
Long-term debt --- --- 60,800 67,100 48,558
Total assets 407,973 384,773 424,952 405,995 362,851
- ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
Other Data:
Earnings per Common Share (4):
Income from continuing operations
before cumulative effect of change in
accounting method 1.25 1.06 1.01 1.12 1.10
Income (Loss) from discontinued
operations (2) --- --- --- 0.13 (0.05)
Cumulative effect of change in
accounting method (3) (0.10) --- --- --- ---
Net income 1.15 1.06 1.01 1.25 1.05
Income from continuing operations
before cumulative effect of change in
accounting method - assuming dilution 1.24 1.06 1.00 1.11 1.09
Income (Loss) from discontinued
operations - assuming dilution (2) --- --- --- 0.13 (0.05)
Cumulative effect of change in
accounting method - assuming
dilution (3) (0.10) --- --- --- ---
Net income - assuming dilution 1.14 1.06 1.00 1.24 1.04
Dividends declared per Common Share:
Class A 0.53 0.52 0.52 0.505 0.47
Class B 0.53 0.52 0.52 0.505 0.47
- ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
(1) Net sales for 1994 through 1997 reflect an accounting reclassification.
(2) Represents "Mrs. Smith's" as described in Note D to the consolidated
financial statements.
(3) Reflects, in 1998, the cumulative effect of adopting the provisions of the
Emerging Issues Task Force of the Financial Accounting Standards Board
consensus ruling No. 97-13, Accounting for Costs Incurred in Connection with
a Consulting Contract that Combines Business Process Reengineering and
Information Technology Transformation (EITF 97-13), as discussed in Note A
to the consolidated financial statements.
(4) Per share amounts prior to 1998 have been restated to comply with Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128).
For further discussion of earnings per share and the impact of SFAS 128,
see Note C to the consolidated financial statements.
2
Summary of Quarterly Results of Operations
The following is a summary of unaudited quarterly results of operations for the
years ended April 30, 1998 and 1997. The Company adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share (SFAS 128), during the quarter
ended January 31, 1998. All per share amounts shown for periods prior to
adoption have been restated to conform to the provisions of SFAS 128.
Net Income per Common Net Income per Common Share
(Dollars in thousands, except per share data) Share (2) - Assuming Dilution (2)
----------------------- -------------------------------
Income Income Income
Before Before Before
Cumulative Cumulative Cumulative
(1) (1) Effect of Effect of Effect of
Quarter Net Gross Accounting Net Accounting Net Accounting Net
Ended Sales Profit Change Income Change Income Change Income
- -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ----------------
1998 July 31 $147,389 $51,396 $9,973 $9,973 $0.34 $0.34 $0.34 $0.34
October 31 145,187 49,213 8,602 8,602 0.30 0.30 0.29 0.29
January 31 130,658 47,232 8,033 5,075 0.27 0.17 0.27 0.17
April 30 142,242 52,022 9,740 9,740 0.34 0.34 0.33 0.33
- -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ----------------
1997 July 31 $129,629 $43,746 $7,489 $7,489 $0.26 $0.26 $0.26 $0.26
October 31 138,296 44,139 7,818 7,818 0.27 0.27 0.27 0.27
January 31 120,251 39,868 6,533 6,533 0.22 0.22 0.22 0.22
April 30 135,931 47,405 9,095 9,095 0.31 0.31 0.31 0.31
- -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ----------------
(1) Net sales and gross profit for 1997 reflect an accounting reclassification.
(2) Annual earnings per share may not equal the sum of the individual quarters
due to differences in the average number of shares outstanding during the
respective periods.
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
30, 1998 was 6,238 and 3,968, respectively.
Class A Common Shares Class B Common Shares
- -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------
Quarter Ended High Low Dividends Quarter Ended High Low Dividends
- -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------
1998 July 31 $24.13 $16.38 $0.13 July 31 $23.00 $16.13 $0.13
October 31 29.44 22.63 0.13 October 31 27.00 22.25 0.13
January 31 27.75 23.63 0.13 January 31 25.25 22.81 0.13
April 30 28.06 23.63 0.14 April 30 27.19 23.75 0.14
- -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------
1997 July 31 $21.75 $17.75 $0.13 July 31 $20.38 $17.50 $0.13
October 31 18.25 16.50 0.13 October 31 17.75 15.38 0.13
January 31 18.75 16.50 0.13 January 31 17.38 15.50 0.13
April 30 18.88 16.25 0.13 April 30 17.75 15.63 0.13
- -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------
3
Management's Discussion and Analysis
Results of Operations
COMPARISON OF 1998 WITH 1997
Fiscal 1998 sales increased $41,369,000, or nearly 8%, over those of the prior
year. The largest percentage increase came in the industrial area where sales
once again achieved double-digit growth over last year. The industrial area's
growth came from a combination of new and existing products in the bakery,
yogurt filling, and frozen dairy categories. Sales also increased significantly
in the domestic fruit spreads category with the majority of the increase coming
from the Company's grocery and mass retail markets. Record sales in the mass
retail market resulted in this channel contributing nearly 15% of the Company's
overall sales growth for the year. The addition of the "Kraft" brand fruit
spreads business, acquired during the fourth quarter of fiscal 1997, also
contributed to the fiscal 1998 sales increase. Sales of dessert toppings
rebounded from 1997 and "Goober" sales also were up.
In the international area, sales and profit contribution were up over fiscal
1997. Although sales were up over prior year, the increase was impacted by the
effect of a stronger U.S. dollar versus the Australian and Canadian dollars. If
the relation of the latter two currencies to the U.S. dollar had remained
constant with fiscal 1997 levels, the Company would have reported additional
sales of approximately $4,000,000. The Company's consumer businesses in
Australia and Canada remained strong with share of market gains achieved in both
countries. Sales gains were also realized in export sales to the Greater Europe
and Latin America markets.
Income before the cumulative effect of an accounting change increased
approximately 17% over last year as earnings per share rose from $1.06 to $1.25.
During the third quarter, the Emerging Issues Task Force of the Financial
Accounting Standards Board issued a consensus ruling requiring that certain
"business process reengineering and information technology transformation" costs
that had previously been capitalized need to be expensed as incurred. In
accordance with this ruling, the Company incurred a one time, net of tax charge
in the third quarter of $2,958,000, or $.10 per share, for the cumulative effect
of expensing previously capitalized costs. This cumulative effect adjustment
reduced earnings per share for the year to $1.15.
In addition to the sales growth, certain other factors contributed to the
improved earnings. The Company's gross profit improved from 33.4% of sales last
year to 35.3% in fiscal 1998 due mostly to lower raw material fruit and
sweetener costs and a more profitable mix of products sold. In addition,
interest expense decreased $1,603,000 from last year, as the Company incurred
only seasonal borrowings against its lines of credit. Somewhat offsetting these
cost reductions was an increase in selling, distribution, and administrative
expenses with the majority of the higher costs relating to two areas. First,
marketing expenditures increased approximately 25% in fiscal 1998, primarily in
support of initiatives within the fruit spreads category. Secondly,
administrative expenses were up significantly due to costs incurred in
conjunction with the Company's ongoing information technology reengineering
(ITR) project.
4
COMPARISON OF 1997 WITH 1996
During 1997, sales increased $6,275,000, or 1%, over those of the prior year.
The Company's industrial, foodservice, and beverage business areas all realized
sales increases. The largest increase came in the industrial area, which
achieved double-digit growth over fiscal 1996. The majority of the increase was
related to an increase in new and existing business with current customers. The
foodservice area realized a 6% increase in sales, due mostly to volume gains in
the portion control and toppings categories. In the beverage area, the
introduction of the "R. W. Knudsen Family's Simply Nutritious" line of
functional / fortified beverages into the natural foods market accounted for
much of that area's growth.
Sales in the consumer area were down 3% compared to fiscal 1996 sales as a
decline in the grocery market was slightly offset by an increase in the mass
retail market. Although sales in the consumer area were down, total fruit
spreads volume in fiscal 1997 was up over 3%, as the Company recognized
substantial gains in its share of the fruit spreads market during the latter
half of the year. The growth was primarily in the area of traditional fruit
spreads in the mass retail and warehouse clubstore markets and expanded
distribution of "Smucker's Light", which the Company rolled out nationally
during fiscal 1997. While the rollout of "Light" enabled the Company to expand
its dominant position in the low calorie / light segment, the fruit-only segment
continued to decline. In the peanut butter category, sales increased over last
year due to volume growth in "Goober" products and the rollout of reduced fat
natural peanut butter. Dessert toppings sales were down from fiscal 1996, due
mostly to significant competitive activity. Overall, profitability in the area
decreased from fiscal 1996 due to increased marketing expenses, higher fruit
costs, and mix of products sold.
In the international area, operating income improved approximately $2,650,000,
although sales were down approximately $4,500,000 from the prior year. The sales
decline was mostly due to the divestiture of Elsenham Quality Foods, the
Company's U.K. subsidiary, in December 1995. The Company realized sales growth
in its Australasian (including China) and Mexican markets. Approximately
one-half of the increase in the Australasian market was due to increased sales,
and the remainder resulted from favorable exchange rates.
5
Net income increased approximately 6% in fiscal 1997 as earnings per share rose
from $1.01 to $1.06. Sales growth contributed to the overall increase in
earnings, particularly in the fourth quarter. The gross profit percentage on
these sales decreased from 34.9% to 33.4% as a result of a general increase in
the overall cost of fruit raw materials, although this was mitigated somewhat in
the second half of the year by the effect of lower corn sweetener prices. Other
factors that contributed to the improved profitability for the year included the
Company's ongoing cost reduction efforts, including improvements in plant
efficiencies and reduced freight and distribution costs, along with the
previously mentioned improvement in the Company's international business.
Interest expense also decreased $645,000 as the Company reduced its outstanding
debt balance during the year.
Capital Resources and Liquidity
The Company's overall financial condition remained strong throughout the year as
cash provided from operations helped increase the April 30, 1998, cash balances
by $12,393,000 compared to the end of fiscal 1997. Significant uses of cash
consisted of capital expenditures, dividends, and the repurchase of stock.
During the year, the Company invested $29,058,000 in capital expenditures while
dividends paid on all Common Shares were at $0.52 per share or $15,100,000 in
total. In addition, the Company repurchased approximately 150,000 shares during
the year as part of a previously approved repurchase plan authorized during
fiscal 1997.
The Company has available an uncommitted line of credit providing up to
$25,000,000 in short-term borrowings. The Company may borrow against this line
of credit during fiscal 1999 to finance its annual procurement of fruit and to
meet other cash requirements. Fiscal 1999 capital expenditures are estimated at
approximately $30,000,000, of which $6,000,000 is anticipated to relate to the
ITR project.
Subsequent to April 30, 1998, subsidiaries of the Company completed two small
acquisitions utilizing available cash. In Australia, Henry Jones Foods Pty. Ltd.
acquired the licensing rights to the "Allowrie" jam brand and certain other
assets of Silvan Foods. In the U.S., Smucker Quality Beverages, Inc. acquired
Garratt & Gunn Ltd., which markets the "Mrs. Wiggles Rocket Juice" brand of
fortified beverages. Assuming there are no other significant acquisitions or
other investments requiring cash outlays and the results of operations are at
least comparable to fiscal 1998, the Company expects cash provided from
operations and borrowings to be sufficient to meet cash requirements in fiscal
1999.
6
Year 2000
The Company is in the process of replacing its primary computer systems as part
of its information technology reengineering (ITR) project, which is intended
primarily to increase efficiency in operations through both the addition of an
enterprise-wide information system and the reengineering of business processes.
In connection with the Company's ITR project, the Company has completed an
assessment of its Year 2000 requirements. The new systems will all be fully Year
2000 compliant. The total ITR project cost is estimated at approximately
$34,000,000, which includes $21,000,000 for the purchase of software and other
capital costs and $13,000,000 that will be expensed as incurred. To date, the
Company has spent approximately $16,000,000 towards the project of which
$8,000,000 has been capitalized at April 30, 1998. Capitalized costs will be
expensed over a period ranging from three to seven years in accordance with the
Company's accounting policy.
A substantial portion of the ITR project is expected to be completed prior to
any anticipated impact of the Year 2000 problem on the Company's operating
systems. With regard to those systems not being replaced as part of the ITR
project, the Company has identified the software that will be affected by the
Year 2000 problem and has plans in place to make corrections. The Company
estimates that $2,000,000, in addition to the ITR costs, will be expensed
specifically related to software modifications to existing systems. The Company
believes that with conversion to the new software and with the scheduled
modifications to existing software, the Year 2000 issue will not pose
significant operational problems for its computer systems.
The costs of the ITR project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
7
Certain Forward-Looking Statements
This annual 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 marketing programs during the coming year; competitive
activity; the mix of products sold; the level of marketing expenditures needed
to generate sales; an increase in fruit costs or costs of other significant
ingredients, including sweeteners; the ability of the Company to maintain and/or
improve sales and earnings performance of its non-retail business areas; foreign
currency exchange rate fluctuations; and the successful implementation of the
Company's information technology reengineering project and Year 2000
modifications.
8
Statements of Consolidated Income
The J. M. Smucker Company
- --------------------------------------------------------------------------------------------------------------------
Year Ended April 30,
- ----------------------------------------------------------------- --------------- ---------------- ----------------
(Dollars in thousands, except per share data) 1998 1997 1996
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Net sales $565,476 $524,107 $517,832
Cost of products sold 365,613 348,949 337,095
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Gross Profit 199,863 175,158 180,737
Selling, distribution, and administrative expenses 142,799 121,954 126,743
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Operating Income 57,064 53,204 53,994
Interest income 2,525 2,048 1,173
Other income (expense) - net 1,315 (338) (983)
- ----------------------------------------------------------------- --------------- ---------------- ----------------
60,904 54,914 54,184
Interest expense 145 1,748 2,393
Loss on disposal of foreign subsidiary --- --- 6,996
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Income from Continuing Operations Before Income
Taxes and Cumulative Effect of Change in
Accounting Method 60,759 53,166 44,795
Income taxes 24,411 22,231 15,342
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Income from Continuing Operations Before
Cumulative Effect of Change in Accounting Method 36,348 30,935 29,453
Discontinued Operations:
Income from discontinued operations, net of
income taxes --- --- 1,284
Loss on discontinuance, net of income taxes --- --- (1,424)
Cumulative effect of change in accounting method,
net of tax benefit of $1,980 (2,958) --- ---
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Net Income $ 33,390 $ 30,935 $ 29,313
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Earnings per Common Share:
Income from continuing operations before
cumulative effect of change in accounting method $ 1.25 $ 1.06 $ 1.01
Cumulative effect of change in accounting method (0.10) --- ---
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Net Income per Common Share $ 1.15 $ 1.06 $ 1.01
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Earnings per Common Share - Assuming Dilution:
Income from continuing operations before
cumulative effect of change in accounting method $ 1.24 $ 1.06 $ 1.00
Cumulative effect of change in accounting method (0.10) --- ---
- ----------------------------------------------------------------- --------------- ---------------- ----------------
Net Income per Common Share - Assuming Dilution $ 1.14 $ 1.06 $ 1.00
================================================================= =============== ================ ================
See notes to consolidated financial statements
9
Consolidated Balance Sheets
The J. M. Smucker Company
Assets
- ------------------------------------------------------------------------ --------------------------------
April 30,
- ------------------------------------------------------------------------ --------------------------------
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------ --------------- ----------------
Current Assets
Cash and cash equivalents $ 36,484 $ 24,091
Trade receivables, less allowance for doubtful accounts 48,732 48,140
Inventories:
Finished products 41,264 39,054
Raw materials, containers, and supplies 62,201 55,052
- ------------------------------------------------------------------------ --------------- ----------------
103,465 94,106
Other current assets 12,825 12,135
- ------------------------------------------------------------------------ --------------- ----------------
Total Current Assets 201,506 178,472
- ------------------------------------------------------------------------ --------------- ----------------
Property, Plant, and Equipment
Land and land improvements 15,058 13,820
Buildings and fixtures 78,658 74,709
Machinery and equipment 177,372 170,160
Construction in progress 13,147 6,881
- ------------------------------------------------------------------------ --------------- ----------------
284,235 265,570
Accumulated depreciation (140,521) (125,935)
- ------------------------------------------------------------------------ --------------- ----------------
Total Property, Plant, and Equipment 143,714 139,635
- ------------------------------------------------------------------------ --------------- ----------------
Other Noncurrent Assets
Goodwill 32,722 34,041
Trademarks and patents 9,688 11,352
Other assets 20,343 21,273
- ------------------------------------------------------------------------ --------------- ----------------
Total Other Noncurrent Assets 62,753 66,666
- ------------------------------------------------------------------------ --------------- ----------------
$407,973 $384,773
======================================================================== =============== ================
10
Liabilities and Shareholders' Equity
------------------------------------------------------------------------- --------------------------------
April 30,
------------------------------------------------------------------------- --------------------------------
(Dollars in thousands) 1998 1997
------------------------------------------------------------------------- ----------------- --------------
Current Liabilities
Accounts payable $ 41,410 $ 36,582
Salaries, wages, and additional compensation 11,225 9,636
Accrued marketing and merchandising 13,319 11,057
Income taxes 6,731 4,116
Dividends payable 4,082 3,823
Other current liabilities 8,133 6,802
------------------------------------------------------------------------- ----------------- --------------
Total Current Liabilities 84,900 72,016
------------------------------------------------------------------------- ----------------- --------------
Noncurrent Liabilities
Postretirement benefits other than pensions 11,858 11,068
Deferred income taxes 6,804 7,604
Other noncurrent liabilities 2,234 2,194
------------------------------------------------------------------------- ----------------- --------------
Total Noncurrent Liabilities 20,896 20,866
------------------------------------------------------------------------- ----------------- --------------
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 - 14,387,402 in 1998
and 14,423,126 in 1997 (net of 1,824,886 and 1,789,162 treasury shares,
respectively), at stated value 3,597 3,606
Class B - (Non-voting) Authorized - 35,000,000 shares;
outstanding - 14,754,734 in 1998 and 14,785,203 in
1997 (net of 1,457,554 and 1,427,085 treasury
shares, respectively), at stated value 3,689 3,696
Additional capital 14,608 12,439
Retained income 298,316 284,605
Less:
Deferred compensation (2,255) (1,396)
Amount due from ESOP Trust (9,787) (10,027)
Currency translation adjustment (5,991) (1,032)
------------------------------------------------------------------------- ----------------- --------------
Total Shareholders' Equity 302,177 291,891
------------------------------------------------------------------------- ----------------- --------------
$407,973 $384,773
========================================================================= ================= ==============
See notes to consolidated financial statements
11
Statements of Consolidated Cash Flows
The J. M. Smucker Company
- ---------------------------------------------------------------------------- ---------------------------------------------
Year Ended April 30,
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
(Dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Operating Activities
Income from continuing operations $33,390 $30,935 $29,453
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation 18,780 18,337 15,288
Amortization 3,759 3,502 2,185
Cumulative effect of change in accounting method, net of
tax benefit 2,958 --- ---
Loss on disposal of foreign subsidiary --- --- 6,996
Deferred income tax (benefit) expense (2,285) 4,026 764
Changes in assets and liabilities, net of effects from
business acquisitions and discontinued operations:
Trade receivables (1,697) (8,043) 1,931
Inventories (10,522) 1,792 (9,738)
Other current assets 653 (1,174) (350)
Accounts payable and accrued items 10,855 341 3,841
Income taxes 5,683 7,114 (6,856)
Other - net (533) 2,693 4,297
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Net Cash Provided by Operating Activities 61,041 59,523 47,811
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Investing Activities
Business acquired - net of cash (1,406) (5,593) ---
Additions to property, plant, and equipment (29,058) (15,751) (25,585)
Proceeds from the sale of property, plant, and equipment 682 627 722
Proceeds from the sale of assets of discontinued operations --- 44,695 ---
Other - net 1,196 767 1,494
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Net Cash (Used for) Provided by Investing Activities (28,586) 24,745 (23,369)
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Financing Activities
Reduction in long-term debt --- (60,800) (6,300)
(Purchase) sale of Common Shares - net (4,465) (245) 98
Net amount received from ESOP 240 224 190
Dividends paid (15,100) (15,113) (15,123)
Other - net 160 140 1,104
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Net Cash (Used for) Financing Activities (19,165) (75,794) (20,031)
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Cash flows provided by continuing operations 13,290 8,474 4,411
Cash flows (used in) provided by discontinued operations --- (1,858) 1,901
Effect of exchange rate changes on cash (897) (172) 91
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Net increase in cash and cash equivalents 12,393 6,444 6,403
Cash and cash equivalents at beginning of year 24,091 17,647 11,244
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
Cash and Cash Equivalents at End of Year $36,484 $24,091 $17,647
- ---------------------------------------------------------------------------- -------------- -------------- ---------------
( ) Denotes use of cash
See notes to consolidated financial statements
12
Statements of Consolidated Shareholders' Equity
The J. M. Smucker Company
Total
COMMON SHARES Deferred Amount Currency Share-
Additional Retained Compen- due from Translation holders'
(Dollars in thousands) Class A Class B Capital Income sation ESOP Trust Adjustment Equity
- --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ----------
Balance at April 30, 1995 $3,596 $3,695 $10,963 $254,854 $(1,292) $(10,441) $(3,383) $257,992
Net income 29,313 29,313
Purchase of treasury shares (14) (14)
Stock plans 1 1 110 565 677
Cash dividends declared -
$.52 a share (15,117) (15,117)
Other 396 190 2,904 3,490
- --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ----------
Balance at April 30, 1996 $3,597 $3,696 $11,469 $269,036 $ (727) $(10,251) $ (479) $276,341
Net income 30,935 30,935
Purchase of treasury shares (3) (2) (240) (245)
Stock plans 12 841 (669) 184
Cash dividends declared -
$.52 a share (15,126) (15,126)
Other 131 224 (553) (198)
- --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ----------
Balance at April 30, 1997 $3,606 $3,696 $12,439 $284,605 $(1,396) $(10,027) $(1,032) $291,891
Net income 33,390 33,390
Purchase of treasury shares (33) (18) (94) (4,320) (4,465)
Stock plans 24 11 1,629 (859) 805
Cash dividends declared -
$.53 a share (15,359) (15,359)
Other 634 240 (4,959) (4,085)
- --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ----------
Balance at April 30, 1998 $3,597 $3,689 $14,608 $298,316 $(2,255) $(9,787) $(5,991) $302,177
See notes to consolidated financial statements
13
Notes to Consolidated Financial Statements
The J. M. Smucker Company
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.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Stock Compensation: The Company has elected to follow Accounting
Principle Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
If compensation cost for the stock options granted in 1998, 1997, and 1996 had
been determined based on the fair value method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), the Company's net income and earnings per share would not have been
materially different from amounts determined using the intrinsic method of APB
25.
14
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 $11,006,000 and
$13,643,000 higher than reported at April 30, 1998 and 1997, 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 from 5
to 40 years. The Company continually evaluates whether events or circumstances
have occurred which would indicate that the carrying value may not be
recoverable or that 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 the asset's carrying value on a current basis.
Accumulated amortization of goodwill and intangible assets at April 30, 1998 and
1997, was $20,223,000 and $17,209,000, respectively.
Property, Plant, and Equipment: Property, plant, and equipment are
recorded at cost and are depreciated on a straight-line basis over the estimated
useful lives of the assets, as follows: 3 to 15 years for machinery and
equipment; and 10 to 40 years for buildings, fixtures, and improvements.
Property sold or retired is eliminated from the accounts in the year of
disposition.
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, ranging from 3 to
7 years, beginning with the project's completion. Net deferred internal use
software costs as of April 30, 1998 and 1997, were $8,794,000 and $4,976,000,
respectively.
In November 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board issued a consensus ruling on accounting for business
process reengineering costs. EITF 97-13, Accounting for Costs Incurred in
Connection with a Consulting Contract that Combines Business Process
Reengineering and Information Technology Transformation, requires that the cost
of business process reengineering activities that are part of a project to
acquire, develop, or implement internal use software, whether done internally or
by third parties, be expensed as incurred. Previously, the Company capitalized
certain of these costs as systems' development costs.
15
In accordance with EITF 97-13, the Company incurred a one-time, net of tax
charge of $2,958,000, or $.10 per share, in the third quarter of fiscal 1998 for
the cumulative effect of expensing these previously capitalized costs.
Consistent with the requirements of EITF 97-13, no restatement of prior year
financial statements has been made. Such costs had primarily been incurred
during the fourth quarter of fiscal 1997.
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 $10,809,000, $10,321,000, and $9,421,000 in fiscal 1998,
1997, and 1996, respectively.
Recently Issued Accounting Standards: In 1997 and early 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), SFAS 131,
Disclosure about Segments of an Enterprise and Related Information, and SFAS
132, Employers' Disclosures about Pensions and Other Postretirement Benefits.
SFAS 130 establishes standards for reporting comprehensive income and its
components in the financial statements. Currently, the Company's only
significant component of comprehensive income relates to currency translation
adjustments. SFAS 131 establishes standards for reporting and disclosing
information about operating segments in financial statements. Although the
Company has not yet determined the impact of adopting SFAS 131 on its financial
statement disclosures, it does not expect any change to its primary financial
statements. SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company is required to adopt these statements in fiscal
1999.
Risks and Uncertainties: The principal products of the Company are
fruit spreads, dessert toppings, peanut butter, industrial fruit products (such
as bakery and yogurt fillings), fruit and vegetable juices, juice beverages,
syrups, condiments, and gift packages. Within the domestic markets, 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. Industrial products are typically sold directly to other food
manufacturers. The Company's distribution outside the United States is
principally in Canada, Australia and the Pacific Rim, and Latin America. The
fruit raw materials used by the Company are generally purchased from
16
independent growers and suppliers, although the Company grows some strawberries
for its own use. Because of the seasonal nature and volatility of quantities of
most of the crops on which the Company depends, it is necessary to prepare and
freeze stocks of fruit and fruit juices and to maintain them in cold storage
warehouses. The Company believes there is no concentration of risk with any
single customer or supplier whose failure or non-performance would materially
affect the Company's results. In addition, the Company insures its business and
assets in each country against insurable risks as and to the extent that it
deems appropriate based upon an analysis of the relative risks and costs. It
believes that the risk of loss from non-insurable events would not have a
material adverse effect on the Company's operations as a whole.
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:
- -------------------------------------- ---------------------------------------------------------------
Year Ended April 30,
- -------------------------------------- --------------------- --------------------- -------------------
(Dollars in thousands) 1998 1997 1996
- -------------------------------------- --------------------- --------------------- -------------------
Net sales:
United States $498,072 $458,063 $447,296
Foreign 67,404 66,044 70,536
- -------------------------------------- --------------------- --------------------- -------------------
Total net sales $565,476 $524,107 $517,832
- -------------------------------------- --------------------- --------------------- -------------------
Operating income:
United States $95,853 $85,507 $87,905
Foreign 6,509 5,045 2,392
- -------------------------------------- --------------------- --------------------- -------------------
102,362 90,552 90,297
Corporate expenses (45,298) (37,348) (36,303)
- -------------------------------------- --------------------- --------------------- -------------------
Total operating income $57,064 $53,204 $53,994
- -------------------------------------- --------------------- --------------------- -------------------
Identifiable assets:
United States $354,522 $326,739 $365,697
Foreign 53,451 58,034 59,255
- -------------------------------------- --------------------- --------------------- -------------------
Total assets $407,973 $384,773 $424,952
- -------------------------------------- --------------------- --------------------- -------------------
17
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.
Note C: Earnings per Share
During 1998, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share (SFAS 128), replacing the previously reported primary
and fully diluted earnings per share with earnings per share and earnings per
share - assuming dilution. Unlike primary earnings per share, earnings per share
exclude the dilutive effects of options, warrants, and convertible securities.
All earnings per share amounts prior to 1998 have been restated to comply with
SFAS 128.
The following table sets forth the computation of earnings per Common Share and
earnings per Common Share - assuming dilution:
Year Ended April 30,
--------------------------------------------------- -------------- -------------- --------------
(Dollars in thousands, except per share data) 1998 1997 1996
--------------------------------------------------- -------------- -------------- --------------
Numerator:
Income before cumulative effect of
change in accounting method for
earnings per Common Share and
earnings per Common Share -
assuming dilution $36,348 $30,935 $29,313
--------------------------------------------------- -------------- -------------- --------------
--------------------------------------------------- -------------- -------------- --------------
Denominator:
Denominator for earnings per
Common Share - weighted-average
shares 29,038,723 29,104,969 29,104,124
Effect of dilutive securities:
Stock options 247,155 42,190 69,245
Restricted stock 59,400 32,921 27,095
--------------------------------------------------- -------------- -------------- --------------
Denominator for earnings per Common Share -
assuming dilution 29,345,278 29,180,080 29,200,464
--------------------------------------------------- -------------- -------------- --------------
Earnings per Common Share before
cumulative effect of change in accounting
method $ 1.25 $ 1.06 $ 1.01
--------------------------------------------------- -------------- -------------- --------------
Earnings per Common Share before
cumulative effect of change in accounting
method - assuming dilution $ 1.24 $ 1.06 $ 1.00
--------------------------------------------------- -------------- -------------- --------------
18
Note D: Divestiture
In fiscal 1997, the Company completed the sale of its "Mrs. Smith's" frozen pie
business to a subsidiary of Flowers Industries, Inc. for a combination of cash
and notes receivable. In connection with this divestiture, the Company also
entered into agreements to lease certain property, plant, and equipment to a
Flowers Industries subsidiary under operating lease agreements. "Mrs. Smith's"
revenues were $2,926,000 and $104,582,000 for the years ended April 30, 1997 and
1996, respectively. Based upon debt specifically identified to "Mrs. Smith's",
interest expense of $271,000 and $3,244,000 was allocated to discontinued
operations in fiscal 1997 and 1996, respectively. A tax benefit of $2,069,000
was allocated to discontinued operations in fiscal 1996.
Note E: 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) 1998 1997 1996
- ---------------------------------------------------------------- -------------- ------------ -----------
Service cost - benefits earned during the period $1,392 $1,481 $1,537
Interest cost on projected benefit obligation 3,930 3,816 3,684
Actual return on plan assets (15,039) (3,681) (6,343)
Deferred gain (loss) 10,641 (498) 2,620
Net amortization and deferral 379 381 373
- ---------------------------------------------------------------- -------------- ------------ -----------
Net periodic pension cost $1,303 $1,499 $1,871
- ---------------------------------------------------------------- -------------- ------------ -----------
19
The following sets forth the funded status and amounts recognized in the
Company's consolidated balance sheets for all Company-administered domestic
pension plans:
---------------------------------------------------------------- ------------------------------ --------------------------------
April 30, 1998 April 30, 1997
---------------------------------------------------------------- ------------------------------ --------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(Dollars in thousands) Benefits Assets Benefits Assets
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
Actuarial present value of accumulated benefit obligation:
Vested benefits $40,333 $7,630 $24,237 $16,458
Non-vested benefits 3,490 419 1,550 1,890
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
Accumulated benefit obligation 43,823 8,049 25,787 18,348
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
Projected benefit obligation for service rendered to date 48,983 10,173 30,192 20,648
Plan assets at fair value 60,303 3,010 37,195 12,860
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
Projected benefit obligation less than (in excess of) plan
assets 11,320 (7,163) 7,003 (7,788)
Unrecognized prior service cost 4,156 615 2,767 2,222
Unrecognized net gain from past experience (9,545) (21) (3,369) (843)
Unamortized net (asset) obligation at transition (1,668) 345 (1,878) 465
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
Prepaid (accrued) pension cost $ 4,263 $(6,224) $ 4,523 $ (5,944)
---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
The expected long-term rate of return on plan assets was 9% for 1998, 1997, and
1996. 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,
1998 and 1997. The discount rate was 7% in 1998 and 7.75% in 1997, while the
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation was 5% in 1998 and 5.25% in
1997. Prior service costs are being amortized over the average remaining service
lives of the employees expected to receive benefits.
The Company also charged to operations approximately $716,000, $687,000, and
$651,000 in 1998, 1997, and 1996, 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.
20
Note F: 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 employees not covered
by certain collective bargaining agreements, 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.
Net periodic postretirement benefit cost related to these plans for 1998, 1997,
and 1996 included the following components:
- ----------------------------------------------------- -------------------------------------------
Year Ended April 30,
- ----------------------------------------------------- --------------- ------------- -------------
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------- --------------- ------------- -------------
Service cost $ 393 $ 424 $ 427
Interest cost 732 708 657
Net amortization and deferral (63) (12) (64)
- ----------------------------------------------------- --------------- ------------- -------------
Net periodic postretirement benefit cost $1,062 $1,120 $1,020
- ----------------------------------------------------- --------------- ------------- -------------
The following table sets forth the combined status of the plans as recognized in
the consolidated balance sheets at April 30, 1998 and 1997:
- --------------------------------------------------------- --------------------------
April 30,
- --------------------------------------------------------- ------------- ------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------- ------------- ------------
Accumulated benefit obligation:
Retirees $ 3,460 $ 3,256
Fully eligible active participants 1,656 1,604
Other active participants 5,384 4,728
Unrecognized actuarial gain 1,358 1,480
- --------------------------------------------------------- ------------- ------------
Postretirement benefits other than pensions $11,858 $11,068
- --------------------------------------------------------- ------------- ------------
The discount rate assumption used to determine the actuarial present value of
the accumulated postretirement benefit obligation was 7% in 1998 and 7.75% in
1997. For 1999, the assumed health care cost trend rates are 7.75% for
participants under age 65 and 5.75% for participants age 65 or older. Both rates
are assumed to decrease gradually to 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, 1998, by $1,706,000 and the net periodic
postretirement benefit cost for the year by $230,000.
21
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 $1,727,000, $1,439,000, and
$1,469,000 in 1998, 1997, and 1996, respectively.
Note G: 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 $363,000,
$377,000, and $398,000 in 1998, 1997, and 1996, respectively. The principal
payments received from the ESOP in 1998, 1997, and 1996 were $240,000, $224,000,
and $190,000, respectively.
The Company measures compensation expense based upon the fair value of the
shares committed to be released to plan participants in accordance with
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans (SOP 93-6). Under the "grandfather" provision of SOP 93-6, the Company
does 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, 1998, the ESOP held 685,048
unallocated shares consisting of 204,124 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 employee savings plans under Section
401(k) of the Internal Revenue Code for all domestic employees not covered by
certain collective bargaining agreements. The Company's contributions under
these plans are based on a specified percentage of employee contributions.
Charges to operations for these plans in 1998, 1997, and 1996 were $981,000,
$901,000, and $890,000, respectively.
22
Restricted Stock: The Restricted Stock Bonus Plan provides for issuance
of Common Shares to key employees. There are 44,100 Class A and 87,100 Class B
Common Shares available for issuance under the plan at April 30, 1998. 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
1998, an award of 30,500 shares of Class A and Class B Common Shares was made
while no awards were granted in 1997 and 1996.
Stock Options: The Company has a stock option plan covering officers
and certain key employees. Options granted under this plan 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 of the shares on the effective
date of the grant.
23
A summary of the Company's stock option activity, and related information
follows:
- ------------------------------------------------------ -------------- --------------- -------------- --------------
Weighted- Weighted-
Average Average
Class A Exercise Class B Exercise
Options Price Options Price
- ------------------------------------------------------ -------------- --------------- -------------- --------------
Outstanding at April 30, 1995 945,600 $23.00 481,300 $18.28
Granted 148,500 18.00 148,500 15.94
Exercised (3,500) 15.94 (3,500) 15.94
Forfeited (6,200) 21.84 (4,200) 20.58
- ------------------------------------------------------ --------------- --------------- -------------- --------------
Outstanding at April 30, 1996 1,084,400 $22.34 622,100 $17.72
Granted 168,000 17.25 168,000 16.25
Exercised (3,288) 11.19 (3,288) 11.19
Forfeited (9,500) 21.50 (6,500) 16.87
- ------------------------------------------------------ --------------- --------------- -------------- --------------
Outstanding at April 30, 1997 1,239,612 $21.69 780,312 $17.44
Granted 151,500 25.78 151,500 24.31
Exercised (71,876) 14.44 (68,576) 13.84
Forfeited (1,000) 17.63 (1,000) 16.10
- ------------------------------------------------------ --------------- --------------- -------------- --------------
Outstanding at April 30, 1998 1,318,236 $22.56 862,236 $18.93
Exercisable at April 30, 1998 1,008,069 $22.87 552,069 $18.26
Available for Future Grants at April 30,
1996 502,866 965,166
1997 344,366 803,666
1998 193,866 653,166
- ------------------------------------------------------ --------------- --------------- -------------- --------------
The following table summarizes the range of exercise prices and weighted-average
exercise prices for options outstanding and exercisable at April 30, 1998, under
the Company's stock option plan:
- ------------ --------------------- ----------------- --------------- ---------------- ---------------- ----------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Share Range of Exercise Contractual Exercise
Class Exercise Prices Outstanding Price Life (yrs.) Exercisable Price
- ------------ --------------------- ----------------- --------------- ---------------- ---------------- ----------------
Class A $15.25 - $19.13 625,936 $18.01 4.9 467,269 $18.20
Class A $23.69 - $31.50 692,300 $26.66 5.9 540,800 $26.91
Class B $15.25 - $24.31 862,236 $18.93 5.9 552,069 $18.26
- ------------ --------------------- ----------------- --------------- ---------------- ---------------- ----------------
The Company granted stock options during fiscal 1996 for the purchase of 150,000
Class B Common Shares to non-employees for consulting services rendered. The
options, which contain a weighted-average exercise price of $20.75, were all
considered outstanding and exercisable at April 30, 1998. The Company recognized
expense relating to these options of $66,000 and $165,000 in 1997 and 1996,
respectively.
24
Note H: Credit Facilities
The Company has available an uncommitted line of credit providing up to
$25,000,000 for short-term borrowings. The interest rate to be charged on any
outstanding balance is based on prevailing market rates. Interest paid on all
borrowings approximated total interest expense in each of the three years ended
April 30, 1998, 1997, and 1996.
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 1998, 1997, and 1996 totaled
$10,950,000, $9,783,000, and $10,264,000, respectively; included therein were
cold storage facility rentals, based on quantities stored, amounting to
$4,956,000, $4,357,000, and $4,699,000, respectively.
25
Note J: Income Taxes
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 are as follows:
- ---------------------------------------------------------------- ----------------------------
April 30,
- ---------------------------------------------------------------- ----------------------------
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------- -------------- -------------
Deferred tax liabilities:
Depreciation $13,244 $13,551
Other (each less than 5% of total liabilities) 2,035 1,893
- ---------------------------------------------------------------- -------------- -------------
Total deferred tax liabilities 15,279 15,444
Deferred tax assets:
Postretirement benefits other than pensions 5,092 4,697
Other employee benefits 4,007 3,118
Foreign net operating loss carryforwards 711 1,234
Other (each less than 5% of total assets) 5,920 4,984
- ---------------------------------------------------------------- -------------- -------------
Total deferred tax assets 15,730 14,033
Valuation allowance for deferred tax assets (1,731) (2,094)
- ---------------------------------------------------------------- -------------- -------------
Total deferred tax assets less allowance 13,999 11,939
- ---------------------------------------------------------------- -------------- -------------
Net deferred tax liability $ (1,280) $ (3,505)
- ---------------------------------------------------------------- -------------- -------------
At April 30, 1998, the Company has foreign net operating loss carryforwards of
$2,700,000 for income tax purposes expiring in 2003. The Company has recorded a
valuation allowance related to foreign tax loss carryforwards and certain other
foreign deferred tax assets due to the uncertainty of their realization. The
change in the valuation allowance relates principally to the utilization of
certain foreign net operating loss carryforwards.
Income from continuing operations before income taxes and cumulative effect of
change in accounting method is as follows:
- ------------------------------------------------------------------- ---------------------------------------------------
Year Ended April 30,
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Domestic $57,061 $50,540 $45,706
Foreign 3,698 2,626 (911)
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Income from continuing operations before income
taxes and cumulative effect of change in accounting
method $60,759 $53,166 $44,795
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
26
The components of the provision for income taxes are as follows:
- ------------------------------------------------------------------- ---------------------------------------------------
Year Ended April 30,
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Current:
Federal $21,684 $14,577 $12,230
Foreign 1,499 760 557
State and local 3,513 2,868 1,791
Deferred (2,285) 4,026 764
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Total income tax expense from continuing operations $24,411 $22,231 $15,342
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
A reconciliation of the statutory federal income tax rate and the effective tax
rate follows:
- ------------------------------------------------------------------- ---------------------------------------------------
- ------------------------------------------------------------------- ---------------------------------------------------
Percent of Pretax Income Year Ended April 30,
- ------------------------------------------------------------------- ---------------------------------------------------
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Decrease in income taxes resulting from:
Loss on divestiture of foreign subsidiary --- --- (8.6)
Increase in income taxes resulting from:
State and local income taxes, net of federal income
tax benefit 3.8 3.5 3.4
Foreign losses not utilized --- --- 1.7
Other items 1.4 3.3 2.7
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Effective income tax rate 40.2% 41.8% 34.2%
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Income taxes paid, including amounts for
discontinued operations $20,755 $10,200 $17,979
- ------------------------------------------------------------------- ---------------- ----------------- ----------------
Note K: 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.