UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 30, 2012
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 001-5111
THE J. M. SMUCKER COMPANY
(Exact name of registrant as specified in its charter)
Ohio | 34-0538550 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
One Strawberry Lane Orrville, Ohio |
44667-0280 | |
(Address of principal executive offices) | (Zip code) |
Registrants telephone number, including area code (330) 682-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered | |
Common shares, no par value | New York Stock Exchange | |
Rights to purchase preferred shares | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2011, was $8,204,431,960. As of June 18, 2012, 110,437,385 common shares of The J. M. Smucker Company were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrants definitive Proxy Statement to be filed in connection with its Annual Meeting of Shareholders to be held on August 15, 2012, are incorporated by reference into Part III of this Report, and certain sections of the registrants 2012 Annual Report to Shareholders are incorporated by reference into Parts I and II of this Report.
The exhibit index for this Report begins on page 26.
PART I
Item 1. | Business. |
The Company. The J. M. Smucker Company (the Company) was established in 1897 and was incorporated in Ohio in 1921. The Company, often referred to as Smucker's (a registered trademark), operates principally in one industry, the manufacturing and marketing of branded food products on a worldwide basis, although the majority of the Companys sales are in the U.S. The Companys operations outside the U.S. are principally in Canada, although products are exported to other countries as well. Sales outside the U.S. represented approximately 9 percent of consolidated Company sales for fiscal 2012. The Companys branded food products include a strong portfolio of trusted, iconic, market-leading brands that are sold to consumers through retail outlets in North America.
On November 6, 2008, the Company completed a merger transaction with The Folgers Coffee Company (Folgers), a subsidiary of The Procter & Gamble Company ("P&G"). The value of the transaction was approximately $3.7 billion, including the issuance of common shares of the Company in connection with the merger and $350 million of Folgers debt. Under the terms of the transaction agreements, P&G distributed common shares of Folgers to participating P&G shareholders which were then automatically converted into the right to receive common shares of the Company in the merger. Immediately following the merger, P&G shareholders and pre-merger Company shareholders owned approximately 53.5 percent and 46.5 percent, respectively, of the Companys approximately 118 million common shares outstanding. The merger was accounted for as a purchase business combination, with the Company treated as the acquiring entity.
On May 16, 2011, the Company completed the acquisition of the coffee brands and business operations of Rowland Coffee Roasters, Inc. (Rowland Coffee). Information regarding the Rowland Coffee acquisition is hereby incorporated by reference to the 2012 Annual Report to Shareholders, on pages 50 through 52 under Note 2: Acquisitions.
On January 3, 2012, the Company completed the acquisition of a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corporation (Sara Lee foodservice business). Information regarding the Sara Lee foodservice business acquisition is hereby incorporated by reference to the 2012 Annual Report to Shareholders, on pages 50 through 52 under Note 2: Acquisitions.
On March 26, 2012, the Company acquired a 25 percent equity interest in Guilin Seamild Biologic Technology Development Co., Ltd. (Seamild), a privately-owned manufacturer and marketer of oats products headquartered in Guilin in the Guangxi province of China. Information regarding the Seamild investment is hereby incorporated by reference to the 2012 Annual Report to Shareholders, on page 52 under Note 3: Equity Method Investment.
The Company has three reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, and International, Foodservice, and Natural Foods. The Companys two U.S. retail market segments in total comprised nearly 80 percent of the Companys net sales in 2012 and represent a major portion of the strategic focus area for the Company the sale of branded food products with leadership positions to consumers through retail outlets in North America. The International, Foodservice, and Natural Foods segment represents sales outside of the U.S. retail market.
Principal Products. The principal products of the Company, which are sold across the Companys U.S. retail market segments and International, Foodservice, and Natural Foods segment are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, and pickles and condiments.
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Product sales information for the years 2012, 2011, and 2010 is incorporated herein by reference to information set forth in the Companys 2012 Annual Report to Shareholders, on pages 53 through 55 under Note 5: Reportable Segments.
In both of the U.S. retail market segments, the Company's products are primarily sold through a combination of direct sales and brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. In the International, Foodservice, and Natural Foods segment, the Companys products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health care operators), and health and natural foods stores and distributors.
Sources and Availability of Raw Materials. The raw materials used by the Company in each of its segments are primarily commodities and agricultural-based products. Green coffee, peanuts, edible oils, sweeteners, milk, flour, corn, and other ingredients are obtained from various suppliers. These commodities are subject to price volatility since prices are dependent on quality and availability of supply. During 2012, the Company experienced overall higher raw material costs, as compared to 2011, specifically for green coffee, edible oils, peanuts, flour, milk, and sweeteners. The prices of many of these commodities are expected to continue to fluctuate over time. The Company uses basis contracts and commodity futures and options to manage price volatility for a significant portion of its commodity costs. Green coffee is sourced solely from foreign countries and its supply and price are subject to high volatility due to factors such as weather, global supply and demand, pest damage, and political and economic conditions in the source countries. Fruit and vegetable raw materials used by the Company in the production of its food products are purchased from independent growers and suppliers. Glass, plastic, steel cans, caps, carton board, and corrugate are the principal packaging materials used by the Company.
Raw materials are generally available from numerous sources although the Company has elected to source certain plastic packaging materials from single sources of supply pursuant to long-term contracts. While availability may vary year-to-year, the Company believes that it will continue to be able to obtain adequate supplies and that alternatives to single-sourced materials are available. The Company has not historically encountered significant shortages of key raw materials. The Company considers its relationship with key raw material suppliers to be good.
Trademarks and Patents. The Company's products are produced under certain patents and marketed under numerous trademarks owned or licensed by the Company or one of its subsidiaries. Major trademarks, utilized primarily in the U.S. retail market segments, include: Folgers®, Dunkin Donuts®, Millstone®, Café Bustelo®, and Café Pilon® in the U.S. Retail Coffee segment; and Smuckers®, Jif®, Hungry Jack®, Uncrustables®, Dickinson's®, Adams®, Laura Scudder's®, Goober®, Magic Shell®, Crisco®, Pillsbury®, Eagle Brand®, Borden® and Elsie design, Martha White®, White Lily®, and Funfetti® in the U.S. Retail Consumer Foods segment.
Major trademarks utilized in the International, Foodservice, and Natural Foods segment include: Folgers, Smuckers, Jif, Crisco, Plate Scapers®, Bicks®, Five Roses®, Robin Hood®, Carnation®, R. W. Knudsen Family®, Santa Cruz Organic®, Double Fruit®, Recharge®, Red River®, Crosse & Blackwell®, Golden Temple®, Café Bustelo, and Café Pilon.
Dunkin Donuts is a registered trademark of DD IP Holder LLC used by the Company under license (the Dunkin License) for packaged coffee products sold in retail channels such as grocery stores, mass merchandisers, club stores, and drug stores. The Dunkin License does not pertain to Dunkin Donuts coffee or other products for sale in Dunkin Donuts restaurants. The terms of the Dunkin License include the payment of royalties to DD IP Holder LLC and other financial commitments by the Company. The Dunkin License is in effect until January 1, 2034.
Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC and are used by the Company under a 20-year, perpetually renewable, royalty-free license.
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Borden and the Elsie design are trademarks used by the Company on certain products under a perpetual, exclusive, and royalty-free license. Carnation is a trademark of Société des Produits Nestlé S.A. used by the Companys Canadian subsidiary for certain canned milk products in certain territories under an exclusive and royalty-free license with an initial term of 10 years, renewable by the Company for two successive five-year terms and which becomes perpetual at the end of the renewal terms under certain circumstances. In addition, the Company or one of its subsidiaries licenses the use of several other trademarks, none of which are individually material to the Company's business.
Slogans or designs considered to be important trademarks include, without limitation, With A Name Like Smucker's, It Has To Be Good®, The Best Part of Wakin Up Is Folgers In Your Cup®, Mountain Grown design, Choosy Moms Choose Jif®, Purely The Finest®, Crisco is Cooking, Everybodys Happy When Its Hungry Jack®, Goodness Gracious, Its Good®, the Smucker's banner, the Crock Jar shape, the Gingham design, and the Strawberry logo.
The Company owns several hundred patents worldwide in addition to proprietary trade secrets, technology, know-how processes, and other intellectual property rights that are not registered.
The Company considers all of its intellectual property and the Pillsbury, Dunkin Donuts, Borden and Elsie design, and Carnation licenses, taken as a whole, to be essential to its business.
Seasonality. The Companys U.S. Retail Coffee and U.S. Retail Consumer Foods segments are particularly seasonal around the Fall Bake and holiday period, which generally results in higher sales and profits in the Companys second and third quarters. The Companys success in promoting and merchandising its baking and coffee brands during the Fall Bake and holiday period has a significant impact on its results for a fiscal year. The back-to-school period and the spring holiday season are two other important promotional periods for the Company, although their impact to the Company is not as significant as the Fall Bake and holiday period.
Working Capital. Working capital requirements are greatest during the first half of the Companys fiscal year mainly due to the timing of the buildup of coffee, oil, and baking inventories necessary to support the Fall Bake and holiday period and the additional buildup of coffee inventory in advance of the Atlantic hurricane season.
Customers. Sales to Wal-Mart Stores, Inc. and its subsidiaries amounted to approximately 26 percent, 26 percent, and 27 percent of net sales in 2012, 2011, and 2010, respectively. These sales are primarily included in the U.S. retail market segments. No other customer exceeded 10 percent of net sales during 2012, 2011, and 2010.
During 2012, the Companys top 10 customers, collectively, accounted for approximately 60 percent of consolidated net sales. Although the loss of any large customer for an extended length of time could negatively impact the Companys sales and profits, the Company does not anticipate that this will occur to a significant extent due to strong consumer demand for the Companys products.
Orders. Generally, orders are filled within a few days of receipt, and the backlog of unfilled orders at any particular time has not been material on a historical basis.
Government Business. No material portion of the Companys business is subject to renegotiation of profits or termination of contracts at the election of the government.
Competition. The Company is the branded market leader in the coffee, peanut butter, shortening, sweetened condensed milk, fruit spreads, ice cream toppings, and natural foods beverages categories in the U.S. The Company's business is highly competitive as all of its U.S. retail market segments brands compete for retail shelf space with other branded products as well as private label products.
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The continued growth of alternative store formats, product and packaging innovations, technological advances, and new industry techniques are all issues for companies in the food industry to consider in order to remain competitive. The primary ways in which products are distinguished are product quality, price, packaging, new product introductions, nutritional value, convenience, advertising, and promotion. Positive factors pertaining to the Companys competitive position include well-recognized brands, superior product quality and trust, experienced brand management, a single national grocery broker in the U.S., varied product offerings, product innovation, good customer service, and an integrated distribution network.
The Company historically has seen accelerated private label growth during periods of general economic disruption. The Company estimates that, during the period following the economic recession of the late 2000s, private label grew more than during past periods partly due to the run up in commodity costs, increased emphasis of store brands by retailers, and improvements in private label quality. The Company believes that both private label and leading brands play an important role in all of the food categories in which it competes, appealing to different consumer segments. The Company closely monitors the price gap or price premium between its brands and private label brands, with the view that value is about more than price and the expectation that number one brands will continue to be an integral part of consumers shopping baskets.
In the U.S. Retail Coffee segment, the Folgers brand competes in the highly competitive U.S. packaged roast and ground coffee market with other retail coffee roasters such as Maxwell House, Yuban, and Nescafe. The Company competes in the premium coffee market with its Millstone and Folgers Gourmet Selections® brands, as well as through sales of Dunkin Donuts retail packaged coffee products, with other brands such as Starbucks, Eight OClock, Seattles Best, Gevalia, and Peets Coffee & Tea. Through a manufacturing and distribution agreement with Green Mountain Coffee Roasters, Inc. (Green Mountain) and Keurig, Inc., the Company competes in the single serve coffee market with its Folgers Gourmet Selections and Millstone premium coffees K-Cup® products. Additionally, Folgers Gourmet Selections will be part of the test rollout of the new Keurig Vue® brewing system. With the acquisition of Rowland Coffee, the Company now competes in the espresso coffee category with its Café Bustelo and Café Pilon brands.
In the U.S. Retail Consumer Foods segment, the Jif brand has been the leader in the peanut butter category for over 20 years, while the Companys natural peanut butter business, sold under the Smuckers, Adams, Laura Scudders, and Jif brands, maintains a strong leadership position in the natural peanut butter category. Although net sales of Jif in 2012 exceeded those in 2011, sales volume declined year over year due to a price increase of approximately 30 percent taken during the year and increased competition. The price increase was taken in response to increasing peanut costs during 2012 related to a poor calendar year 2011 peanut crop. The Companys fruit spread brands, primarily Smuckers and Dickinsons, hold the leading position in the fruit spreads category and compete with Welchs branded line of fruit spreads and many private label brands. The competing brands exist on both a national and a regional level. Crisco has historically been a leader in the shortening and cooking oils categories. Crisco holds the leading branded position in the shortening category and competes with other branded competitors for the leading branded position in the oils category. The oils category in which Crisco competes is highly competitive with private label competitors maintaining the largest share of the category. The category is also significantly impacted by volatile commodity pricing. During 2012, sales volume declined for Crisco oils, compared to 2011, due to substantial price competition of private label offerings by certain retailers. The Companys Pillsbury brand competes in the dessert and baking mixes (DBM) market that includes mixes for cakes, cookies, brownies, muffins, and quick breads, as well as ready-to-spread frostings and ingredients used in scratch baking such as flour. Within the DBM category, the Company competes primarily with the Betty Crocker and Duncan Hines brands and many private label and regional brands. The Companys Hungry Jack brand competes in the pancake mix and table syrup category. The Company competes with several major national as well as private label brands in this category. The Company competes in the canned milk category with both branded and nonbranded products. The Company is the branded market leader in the sweetened condensed milk category with its Eagle Brand and Magnolia® brands and has significant sales with production of private label brands. In the evaporated milk category, the Company has a significant presence with its production of private label brands.
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Research and Development. The Company predominantly utilizes in-house resources to both develop new products and improve existing products in each of its business areas. Amounts expensed for product development were $21.9 million, $21.0 million, and $21.0 million in 2012, 2011, and 2010, respectively.
Environmental Matters. The Company considers environmental sustainability to be its responsibility as a good corporate citizen and a key strategic focus area for the Company. The Company has implemented and manages a variety of programs, including the utilization of renewable energy technology, improved wastewater management, increased usage of sustainable raw materials including green coffee, and reuse of resources rather than consuming new ones, in support of its commitment to environmental sustainability. The Company continues to evaluate and modify its processes on an ongoing basis to further reduce its impact on the environment and reduce waste.
Compliance with the provisions of enacted or pending federal, state, and local environmental regulations regarding either the discharge of materials into the environment or the protection of the environment is not expected to have a material effect upon the Companys capital expenditures, earnings, or competitive position in 2013.
Employees. At April 30, 2012, the Company had approximately 4,850 full-time employees, worldwide. Approximately 28 percent of these employees, located at 11 facilities, are covered by union contracts. These contracts vary in term depending on the location. The Company believes its relations with its employees are good.
Financial Information about Industry Segments and Geographical Areas. The financial information required to be included in this item concerning reportable industry segments and international operations for the years 2012, 2011, and 2010 is incorporated herein by reference to information set forth in the Companys 2012 Annual Report to Shareholders, on pages 53 through 55, under Note 5: Reportable Segments. The Companys international operations are primarily in Canada with risks similar to those associated with the U.S. retail markets. More than one-half of the Companys Canada sales represent the sale of Canadian produced products to Canadian customers. The majority of the remaining Canada sales represent the sale of products produced in the U.S. to Canadian customers, primarily Folgers coffee and Crisco oils.
Forward-Looking Statements. This Report includes forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from expected or projected results. The descriptions of risks and uncertainties relating to forward-looking statements is incorporated herein by reference to information set forth in the Companys 2012 Annual Report to Shareholders under the caption Forward-Looking Statements on page 36.
Available Information. Access to all Securities and Exchange Commission (SEC) filings made by the Company, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), is provided, free of charge, on the Companys Web site (www.smuckers.com) as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
Item 1A. | Risk Factors. |
The Companys business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described below should be carefully considered, together with the other information contained or incorporated by reference in this Report and in the Companys other filings with
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the SEC, in connection with evaluating the Company, its business, and the forward-looking statements contained in this Report. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial also may affect the Company. The occurrence of any of these known or unknown risks could have a material adverse impact on the Companys business, financial condition, and results of operations.
| The Company operates in the competitive food industry and continued demand for its products may be affected by changes in consumer preferences. |
The Company faces competition across its product lines from other food companies with the primary methods and factors in competition being product quality, price, packaging, product innovation, nutritional value, convenience, customer service, advertising, and promotion. Continued success is dependent on product innovation, the ability to secure and maintain adequate retail shelf space, and effective trade merchandising, advertising, and marketing programs. Some of the Companys competitors have substantial financial, marketing, and other resources, and competition with them in the Companys various markets and product lines could cause the Company to reduce prices, increase marketing or other expenditures, or lose category share. Category share and growth could be adversely impacted if the Company is not successful in introducing new products. In order to generate future revenues and profits, the Company must continue to sell products that appeal to its customers and consumers. Specifically, there are a number of trends in consumer preferences that may impact the Company and the food industry as a whole including convenience, taste, consumer dietary trends, and obesity, health, and nutritional concerns.
In particular, consumers, public health officials, and government officials are becoming increasingly concerned about the public health consequences associated with weight management, particularly among young people. Prolonged negative perceptions concerning the health implications of certain food products could influence consumer preferences and acceptance of some of the Companys products and marketing programs. Although the Company strives to respond to consumer preferences and social expectations, it may not be successful in these efforts. Increasing public concern regarding health issues and failure to satisfy consumer preferences could decrease demand for certain of the Companys products and adversely affect the Companys profitability.
| The success of the Companys business depends substantially on consumer perceptions of its brands. |
The Company believes that maintaining and continually enhancing the value of its brands is critical to the success of its business. Brand value is based in large part on consumer perceptions. Success in promoting and enhancing brand value depends in large part on the Companys ability to provide high-quality products. Brand value could diminish significantly as a result of a number of factors, such as if the Company fails to preserve the quality of its products, if the Company is perceived to act in an irresponsible manner, if the Company or its brands otherwise receive negative publicity, if the brands fail to deliver a consistently positive consumer experience, or if the products become unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. If the Companys brand values are diminished, the Companys revenues and operating results could be materially adversely affected. In addition, anything that harms the Pillsbury, Carnation, Borden, or Dunkin Donuts brands could adversely affect the success of the Companys exclusive licensing agreements with the owners of these brands.
| The Companys operations are subject to the general risks of the food industry. |
The food industry is subject to risks posed by food spoilage and contamination, product tampering, product recall, and consumer product liability claims. The Companys operations could be impacted by both genuine and fictitious claims regarding the Companys and its competitors
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products. In the event of product contamination or tampering, the Company may need to recall some of its products. A widespread product recall could result in significant loss due to the cost of conducting a product recall, including destruction of inventory and the loss of sales resulting from the unavailability of product for a period of time. The Company could also suffer losses from a significant product liability judgment against it. A significant product recall or a product liability judgment, involving either the Company or its competitors, could also result in a loss of consumer confidence in the Companys food products or the food category, and an actual or perceived loss of value of the Companys brands, materially impacting consumer demand.
| The Company could be subject to adverse publicity or claims from consumers. |
Certain of the Companys products contain caffeine and other ingredients, the health effects of which are the subject of increasing public scrutiny, including the suggestion that consumption may have adverse health effects. An unfavorable report on the health effects of caffeine or other ingredients present in the Companys products, product recalls, or negative publicity or litigation arising from other health risks could significantly reduce the demand for the Companys products.
The Company may also be subject to complaints from or litigation by consumers who allege food and beverage-related illness, or other quality, health, or operational concerns. Adverse publicity resulting from such allegations could materially adversely affect the Company, regardless of whether such allegations are true or whether the Company is ultimately held liable. A lawsuit or claim could result in an adverse decision against the Company, which could have a material adverse effect on its business, financial condition, and results of operations.
| The Company may be unable to grow market share of its products. |
The Company operates in the competitive food industry whose growth potential is generally correlated to population growth. The Companys success depends in part on its ability to grow its brands faster than the population in general. The Company considers its ability to build and sustain the equity of its brands critical to its market share growth. If the Company does not succeed in these efforts, its market share growth may slow, which could have a material impact on its results of operations.
| The Companys proprietary brands, packaging designs, and manufacturing methods are essential to the value of its business and the inability to protect these could harm the value of its brands and adversely affect the Companys sales and profitability. |
The success of the Companys business depends significantly on its brands, know-how, and other intellectual property. The Company relies on a combination of trademarks, service marks, trade secrets, patents, copyrights, and similar rights to protect its intellectual property. The success of the Companys growth strategy depends on its continued ability to use its existing trademarks and service marks in order to maintain and increase brand awareness and further develop its brand. If the Companys efforts to protect its intellectual property are not adequate, or if any third party misappropriates or infringes on its intellectual property, the value of the Companys brand may be harmed, which could have a material adverse effect on its business. From time to time, the Company is engaged in litigation to protect its intellectual property, which could result in substantial costs to the Company as well as diversion of management attention.
In particular, the Company considers its proprietary coffee roasting methods essential to the consistent flavor and richness of its coffee products and, therefore, essential to its coffee brands. Because many of the roasting methods used by the Company are not protected by patents, it may be difficult for the Company to prevent competitors from copying its roasting methods if such methods become known. The Company also believes that its packaging innovations, such as brick packaging technology and its AromaSealTM canisters, are important to the coffee business marketing and operational efforts. If the Companys competitors copy its roasting or packaging methods or develop more advanced roasting or packaging methods, the value of the Companys coffee brands may be diminished, and the Company could lose customers to its competitors.
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| The Company uses a single national broker to represent a significant portion of the Companys branded products to the retail grocery trade and any failure by the broker to effectively represent the Company could adversely affect the Companys business. |
The Company uses a single national broker to represent a significant portion of branded products to the retail grocery trade. The Companys business would suffer substantial disruption if this broker were to default in the performance of its obligations to perform brokerage services or if this broker fails to effectively represent the Company to the retail grocery trade, which could adversely affect the Companys business.
| Changes in the Companys relationships with significant customers, including the loss of the Companys largest customer, or the consolidation of retail customers could adversely affect the Company. |
Sales to Wal-Mart Stores, Inc. and its subsidiaries amounted to approximately 26 percent of the Companys net sales in 2012. These sales are primarily included in the two U.S. retail market segments. Trade receivables at April 30, 2012, included amounts due from Wal-Mart Stores, Inc. and its subsidiaries of approximately $84.1 million. During 2012, the Companys top 10 customers, collectively, accounted for approximately 60 percent of consolidated net sales. The Company expects that a significant portion of its revenues will continue to be derived from a small number of customers. In particular, retail customers, such as supermarkets, warehouse clubs, and food distributors, continue to consolidate, resulting in fewer customers on which the Company can rely for business. Consolidation also produces large, more sophisticated retail customers that can resist price increases and demand lower pricing, increased promotional programs, or specifically tailored products. The Companys customers are generally not contractually obligated to purchase from the Company. These customers make purchase decisions based on a combination of price, product quality, consumer demand, customer service performance, their desired inventory levels, and other factors. Changes in customers strategies, including a reduction in the number of brands they carry or a shift of shelf space to private label products, may adversely affect sales. Customers also may respond to price increases by reducing distribution, resulting in reduced sales of the Companys products. Additionally, the Companys customers may face financial or other difficulties that may impact their operations and their purchases from the Company, which could adversely affect results of operations. If sales of products to one or more major customers are reduced, this reduction could have a material adverse effect on the Companys business, financial condition, and results of operations.
| Loss or interruption of supply from single-source suppliers of raw materials and finished goods could have a disruptive effect on the Companys business and adversely affect its results of operations. |
The Company has elected to source certain raw materials, such as packaging for its most popular Folgers coffee products, as well as its Jif peanut butter and Crisco oil products, and finished goods, such as K-Cups, from single sources of supply. While the Company believes that, except as set forth below, alternative sources of these raw materials and finished goods could be obtained on commercially reasonable terms, loss or an extended interruption in supplies from a single-source supplier would result in additional costs, could have a disruptive short-term effect on the Companys business, and could adversely affect its results of operations.
Green Mountain is the Companys single-source supplier for K-Cups which are used in Green Mountains proprietary Keurig® K-Cup brewing system. There are a limited number of manufacturers other than Green Mountain that are making cups that will work in such proprietary brewing system. If Green Mountain is unable to supply K-Cups to the Company for any reason, it could be difficult for the Company to find an alternative supplier for such goods on commercially reasonable terms, which could have a material adverse effect on the Companys results of operations.
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| The results of the Company may be adversely impacted as a result of increased cost, limited availability, and/or insufficient quality of raw materials, including commodities and agricultural products. |
The Company and its business partners purchase and use large quantities of many different commodities and agricultural products in the manufacturing of the Companys products including green coffee, peanuts, sweeteners, edible oils, fruit, wheat, milk, and cocoa. In addition, the Company and its business partners utilize significant quantities of plastic, glass, and cardboard to package the Companys products and natural gas and fuel oil to manufacture, package, and distribute the Companys products. The prices of these commodities, agricultural products, and other materials are subject to volatility and can fluctuate due to conditions that are difficult to predict, including global supply and demand, commodity market fluctuations, crop sizes and yield fluctuations, weather, natural disasters, currency fluctuations, speculative influences, trade agreements, political unrest, consumer demand, and changes in governmental agricultural programs. For example, during 2012, costs to acquire peanuts increased, in part, due to adverse weather conditions. Although the Company utilizes forward contracts and commodity futures and option contracts to manage commodity price volatility in some instances, commodity price increases ultimately result in corresponding increases in the Companys raw material and energy costs.
In addition, the price of green coffee has been subject to significant volatility over the last two years. In early May 2011, green coffee commodity prices reached a 34-year high at a level approximately 50 percent higher than they were eight months earlier and over 125 percent higher than they were a year earlier. The Company expects the green coffee commodity market to continue to be challenging. Due to the significance of green coffee to the Company's coffee business, combined with the Company's ability to only partially mitigate future price risk through purchasing practices and hedging activities, significant increases or decreases in the cost of green coffee could have an adverse impact on the Company's profitability. In addition, if the Company is not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, the Company may not be able to fulfill the demand for its coffee, which could have a material adverse effect on the Companys business, financial condition, and results of operations.
| The Company may be limited in its ability to pass cost increases on to its customers in the form of price increases or may realize a decrease in sales volume to the extent price increases are implemented. |
The Company may not be able to pass some or all of any increases in the price of raw materials, energy, and other input costs to its customers by raising prices. To the extent competitors do not also increase their prices, customers and consumers may choose to purchase competing products or may shift purchases to private label or other lower-priced offerings which may adversely affect the Companys results of operations.
Consumers may be less willing or able to pay a price differential for the Companys branded products, and may increasingly purchase lower-priced offerings and may forego some purchases altogether, especially during economic downturns. Retailers may also increase levels of promotional activity for lower-priced offerings as they seek to maintain sales volumes during times of economic uncertainty. Accordingly, sales volumes of the Companys branded products could be reduced or lead to a shift in sales mix toward its lower-margin offerings. As a result, decreased demand for the Companys products may adversely affect its results of operations.
| The Company's efforts to manage commodity and other price volatility through derivative instruments could adversely affect its results of operations and financial condition. |
10
The Company uses derivative instruments, including commodity futures and options, to reduce the price volatility associated with anticipated commodity purchases. The extent of the Companys derivative position at any given time depends on the Companys assessment of the markets for these commodities. If the Company fails to take a derivative position and costs subsequently increase, or if it institutes a position and costs subsequently decrease, the Companys costs may be greater than anticipated or higher than its competitors costs and financial results could be adversely affected. In addition, the Companys liquidity may be adversely impacted by the cash margin requirements of the commodities exchanges or the failure of a counterparty to perform in accordance with a contract.
| The results of the Company may be adversely impacted by growth in alternative energy markets. |
The Company competes for certain raw materials, notably corn and soy-based agricultural products, with the emerging bio-fuels industry. Growth in the bio-fuels industry, which is typically linked to increases in gasoline and diesel prices, may limit the supply of certain raw materials available to the Company. Additionally, farm acreage currently devoted to other agricultural products utilized by the Company may be converted to corn or soy resulting in higher cost for other agricultural products utilized by the Company.
| Certain of the Companys products are sourced from single manufacturing sites. |
The Company has consolidated its production capacity for certain products, including substantially all the Companys coffee production, into single manufacturing sites. In addition, the Company is proceeding with plans to further consolidate its fruit spreads, syrups, and toppings production as part of its current restructuring project. The Company could experience a production disruption at these or any of its manufacturing sites resulting in a reduction or elimination of the availability of some of the Companys products. If the Company is not able to obtain alternate production capability in a timely manner, the Companys business, financial condition, and results of operations could be adversely affected.
| A significant interruption in the operation of any of the Companys supply chain or distribution capabilities could have an adverse effect on the Companys business, financial condition, and results of operations. |
The ability of the Company and its third-party suppliers and service providers, distributors, and contract manufacturers to manufacture, distribute, and sell products is critical to the Companys success. A significant interruption in the operation of any of the Companys manufacturing or distribution capabilities, or the manufacturing or distribution capabilities of the Companys suppliers, distributors, or contract manufacturers, or a service failure by a third-party service provider, whether as a result of adverse weather conditions or a natural disaster, terrorism, pandemic illness, or other causes, could significantly impair the Companys ability to operate its business. Notably, as a result of the Companys current restructuring project, substantially all of the Companys coffee production takes place in New Orleans, Louisiana, which is subject to risks associated with hurricane and other weather-related events. Following Hurricane Katrina in August 2005, production at the New Orleans, Louisiana, facility was interrupted for approximately two months, resulting in a significant decline in coffee revenues for several months. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect the Companys business, financial condition, and results of operations.
| The Companys business could be harmed by strikes or work stoppages. |
As of April 30, 2012, approximately 28 percent of the Companys employees, located at 11 facilities, are covered by collective bargaining agreements. These contracts vary in term depending on location. The Company cannot assure that it will be able to renew these collective
11
bargaining agreements on the same or more favorable terms as the current agreements, or at all, without production interruptions caused by labor stoppages. If a strike or work stoppage were to occur in connection with negotiations of new collective bargaining agreements or as a result of disputes under collective bargaining agreements with labor unions, the Companys business, financial condition, and results of operations could be materially adversely affected.
| Increases in logistics and other transportation-related costs could adversely impact the Companys results of operations. The Companys ability to competitively serve customers depends on the availability of reliable transportation. |
Logistics and other transportation-related costs have a significant impact on the Companys earnings and results of operations. The Company uses multiple forms of transportation to bring the Companys products to market. They include ships, trucks, intermodals, and railcars. Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, labor shortages in the transportation industry, service failures by third-party service providers, accidents, or natural disasters (which may impact the transportation infrastructure or demand for transportation services), could have an adverse effect on the Companys ability to serve its customers, and could have a material adverse effect on its business, financial condition, and results of operations.
| The Company may not achieve cost savings anticipated as a result of its restructuring initiatives. |
The Company has periodically commenced restructuring initiatives with the expectation of realizing future benefits including operational efficiencies or cost savings. The future benefits the Company expects from restructuring initiatives may not be realized during the time period expected, or at all, due to unforeseen or changing business conditions. In addition, costs incurred to realize the future benefits may be higher than anticipated and the Companys results of operations could be adversely affected.
| The Companys operations are subject to the general risks associated with acquisitions. |
The Companys stated long-term strategy is to own and market leading North American food brands sold in the center of the store while maintaining a global perspective. The Company has historically made strategic acquisitions of brands and businesses and intends to do so in the future in support of this strategy. If the Company is unable to complete acquisitions or to successfully integrate and develop acquired businesses, including the acquired Sara Lee foodservice business and Rowland Coffee, the Company could fail to achieve anticipated synergies and cost savings, including the expected increases in revenues and operating results, any of which could have a material adverse effect on the Companys financial results. Additional potential risks associated with acquisitions are the diversion of managements attention from other business concerns, additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, disputes with sellers, and the inherent risk associated with the Company entering a line of business in which it has no or limited prior experience.
| A material impairment in the carrying value of acquired goodwill or other intangible assets could negatively affect the Companys consolidated operating results and net worth. |
A significant portion of the Companys assets is goodwill and other intangible assets, the majority of which are not amortized but are reviewed at least annually for impairment. At April 30, 2012, the carrying value of goodwill and other intangible assets totaled approximately $6.2 billion, compared to total assets of approximately $9.1 billion and total shareholders equity of approximately $5.2 billion. If the carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired and this could result in a noncash charge to earnings. Any such impairment charge would reduce earnings and could be material. Events and conditions that could result in impairment include a sustained drop in the market price of the Companys common shares, increased competition or loss of market share, obsolescence, or product claims that result in a significant loss of sales or profitability over the product life.
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| The results of the Company may be adversely impacted as a result of changes in defined benefit pension and other postretirement plan factors or regulations. |
The Company has defined benefit pension plans covering certain of its U.S. and Canadian employees. In addition to the defined benefit pension plans, the Company sponsors several unfunded, defined postretirement plans. The Companys obligations and expense associated with these plans are recorded in the Companys financial statements based on assumptions related to inflation, investment returns, mortality, employee turnover, rate of compensation increases, medical costs, and discount rates. Changes in regulations governing these plans, changes in plan assumptions, and differences between assumed and actual investment returns and interest rates can cause volatility in recorded assets, liabilities, expenses, and future funding requirements.
| Changes in tax, environmental, or other regulations and laws, or their application, or failure to comply with existing licensing, trade, and other regulations and laws could have a material adverse effect on the Companys financial condition. |
The Companys operations are subject to various regulations and laws administered by federal, state, and local government agencies in the U.S., as well as to regulations and laws administered by government agencies in Canada and other countries in which the Company has operations and the Companys products are sold.
The manufacturing, marketing, packaging, labeling, and distribution of food products are each subject to governmental regulation that is increasingly extensive, encompassing such matters as ingredients, packaging, advertising, relations with distributors and retailers, health, safety, and the environment. Additionally, the Company is routinely subject to new or modified tax and securities regulations, other laws and regulations, and accounting and reporting standards.
In the U.S., the Company is required to comply with federal laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, laws governing equal employment opportunity, and various other federal statutes and regulations. The Company is also subject to various state and local statutes and regulations. For instance, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly referred to as "Proposition 65") requires that a specific warning appear on any product sold in the State of California that contains a substance listed by that state as having been found to cause cancer or birth defects. This law exposes all food and beverage producers to the possibility of having to provide warnings on their products. The detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label. Products containing listed substances that occur naturally or that are contributed to such products solely by a municipal water supply are generally exempt from the warning requirement. If the Company is required to add warning labels to any of its products or place warnings in certain locations where its products are sold as a result of Proposition 65, sales of those products could suffer not only in those locations but elsewhere.
Complying with new regulations and laws, or changes to existing regulations and laws, or their application could increase the Company's production costs or adversely affect the Company's sales of certain products. In addition, the Companys failure or inability to comply with applicable regulations and laws could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on the Companys business and financial condition.
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| The Companys operations in certain developing markets expose it to regulatory risks. |
In many countries outside of the U.S., particularly in those with developing economies, it may be common for others to engage in business practices prohibited by laws and regulations applicable to the Company, such as the U.S. Foreign Corrupt Practices Act or similar local anti-bribery or anti-corruption laws. These laws generally prohibit companies and their employees, contractors, or agents from making improper payments to government officials for the purpose of obtaining or retaining business. Failure to comply with these laws could subject the Company to civil and criminal penalties that could have a material adverse effect on its financial condition and results of operations.
| Changes in climate or legal, regulatory, or market measures to address climate change may negatively affect the Companys business and operations. |
While scientific consensus on the existence, potential causes, or likely outcomes of global climate change has not yet been reached, researchers continue to aggressively explore this issue. However, there already exists significant political and scientific concern that emissions of carbon dioxide and other greenhouse gases may alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate. The emission of such greenhouse gases may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that climate change may have a negative effect on agricultural productivity, the Company may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for its products, such as green coffee, peanuts, sweeteners, edible oils, wheat, milk, cocoa, and various fruits and vegetables. The Company may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could impact its manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of facilities or the operation of the Companys supply chain.
Increasing concern over climate change also may result in more regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulations are enacted and are more rigorous than existing regulations, the Company may experience significant increases in costs of operation and delivery. In particular, increased regulation of utility providers, fuel emissions, or suppliers could substantially increase the Companys operating, distribution, or supply chain costs. The Company could also face increased costs related to defending and resolving legal claims and other litigation related to climate change. As a result, climate change could negatively affect the Companys results of operations, cash flows, or financial position.
| If the Companys information technology systems fail to perform adequately or the Company is unable to protect such information technology systems against data corruption, cyber-based attacks, or network security breaches, the Companys operations could be disrupted. |
The Company relies on information technology networks and systems, including the Internet, to process, transmit, and store electronic information. In particular, the Company depends on its information technology infrastructure to effectively manage its business data, supply chain, logistics, accounting, and other business processes and for digital marketing activities and electronic communications between Company personnel and its customers and suppliers. If the Company does not allocate and effectively manage the resources necessary to build and sustain an appropriate technology infrastructure, the Companys business or financial results could be negatively impacted. In addition, security breaches or system failures of this infrastructure can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. If the Company is unable to prevent such breaches or failures, its operations could be disrupted, or it may suffer financial damage or loss because of lost or misappropriated information.
In addition, the Company has outsourced certain information technology support services and administrative functions, such as accounts payable processing and benefit plan administration, to
14
third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. If the service providers to which the Company outsources these functions do not perform effectively, the Company may not be able to achieve the expected cost savings and may have to incur additional costs in connection with such failure to perform. Depending on the function involved, such failures may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, the loss of sensitive data through security breach, or otherwise.
| Disruptions in the financial markets may adversely affect the Companys ability to access capital in the future. |
The Company may need new or additional financing in the future to conduct its operations, expand its business, or refinance existing indebtedness. Disruptions in global financial markets and banking systems may make credit and capital markets more difficult for companies to access, even for some companies with established revolving or other credit facilities. Any sustained weakness in the general economic conditions and/or financial markets in the U.S. or globally could adversely affect the Companys ability to raise capital on favorable terms or at all. From time to time, the Company has relied, and also may rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions, and general corporate purposes. The Companys access to funds under its revolving credit facility is dependent on the ability of the financial institutions that are parties to that facility to meet their funding commitments. The obligations of the financial institutions under the Companys revolving credit facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others. Long-term volatility and disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives, or failure of significant financial institutions could adversely affect the Companys access to the liquidity needed for its businesses in the longer term. Such disruptions could require the Company to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for its business needs can be arranged. Disruptions in the capital and credit markets could result in higher interest rates on publicly issued debt securities and increased costs under credit facilities. Continuation of these disruptions would increase the Companys interest expense and capital costs and could adversely affect its results of operations and financial position.
15
Item 1B. | Unresolved Staff Comments. |
None.
Item 2. | Properties. |
The table below lists all of the Company's manufacturing and processing facilities at April 30, 2012. All of the Company's properties are maintained and updated on a regular basis, and the Company continues to make investments for expansion, and safety and technological improvements. The Company believes that existing capacity at these facilities is sufficient to sustain current operations and anticipated near-term growth.
The Company owns all of the properties listed below, except for one of the properties in New Orleans, Louisiana, and the property in Harahan, Louisiana,(A) which are leased. The Company also leases six sales and administrative offices in the U.S., and one each in Canada, Mexico, and China. The Companys corporate headquarters are located in Orrville, Ohio, and the Companys Canadian headquarters are located in Markham, Ontario.
U.S. Locations | Products Produced/Processed | Primary Reportable Segment | ||
Chico, California | Fruit and vegetable juices and beverages | International, Foodservice, and Natural Foods | ||
Cincinnati, Ohio | Shortening and oils | U.S. Retail Consumer Foods | ||
El Paso, Texas | Canned milk | U.S. Retail Consumer Foods | ||
Grandview, Washington | Fruit | U.S. Retail Consumer Foods | ||
Harahan, Louisiana | Coffee | International, Foodservice, and Natural Foods | ||
Havre de Grace, Maryland | Fruit and vegetable juices and beverages | International, Foodservice, and Natural Foods | ||
Kansas City, Missouri (B) | None | U.S. Retail Coffee | ||
Lexington, Kentucky | Peanut butter | U.S. Retail Consumer Foods | ||
Memphis, Tennessee (C) | Fruit spreads, toppings, and syrups | U.S. Retail Consumer Foods | ||
Miami, Florida (D) | Coffee | U.S. Retail Coffee | ||
New Bethlehem, Pennsylvania | Peanut butter and combination peanut butter and jelly products | U.S. Retail Consumer Foods | ||
New Orleans, Louisiana (two facilities) | Coffee | U.S. Retail Coffee | ||
Orrville, Ohio | Fruit spreads, toppings, and syrups | U.S. Retail Consumer Foods | ||
Oxnard, California | Fruit | U.S. Retail Consumer Foods | ||
Ripon, Wisconsin | Fruit spreads, toppings, syrups, and condiments | U.S. Retail Consumer Foods | ||
Scottsville, Kentucky | Frozen sandwiches and ready-to-eat waffles | International, Foodservice, and Natural Foods | ||
Seneca, Missouri | Canned milk | U.S. Retail Consumer Foods | ||
Suffolk, Virginia | Coffee | International, Foodservice, and Natural Foods | ||
Toledo, Ohio | Baking mixes, frostings, and flour | U.S. Retail Consumer Foods | ||
Canada Locations | Products Produced/Processed | Primary Reportable Segment | ||
Delhi Township, Ontario (B) | None | International, Foodservice, and Natural Foods | ||
Dunnville, Ontario (B) | None | International, Foodservice, and Natural Foods | ||
Sherbrooke, Quebec | Canned milk | International, Foodservice, and Natural Foods | ||
Ste. Marie, Quebec (C) | Fruit spreads, sweet spreads, and fruit industrial products | International, Foodservice, and Natural Foods |
(A) | The Company leases the land, but owns the buildings, at one of the New Orleans, Louisiana, facilities. The Company leases the Harahan, Louisiana facility. |
(B) | These properties are still owned by the Company. However, production ceased at these locations prior to April 30, 2012, in connection with the Companys restructuring plans as described in the Company's 2012 Annual Report to Shareholders on pages 52 and 53 under Note 4: Restructuring. |
(C) | These locations are currently expected to close as part of the Companys restructuring plans as described in the Company's 2012 Annual Report to Shareholders on pages 52 and 53 under Note 4: Restructuring. |
(D) | The Miami, Florida, location is expected to close as a result of the Companys plan to consolidate coffee production currently in Miami into the Companys existing facilities in New Orleans, Louisiana, as described in the Companys 2012 Annual Report to Shareholders on pages 50 through 52 under Note 2: Acquisitions. |
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Item 3. | Legal Proceedings. |
The Company is a defendant in a variety of legal proceedings. While the Company cannot predict with certainty the ultimate results of these proceedings, the Company does not believe that the final outcome of these proceedings will have a material adverse affect on the Companys financial position, results of operations, or cash flows.
Item 4. | Mine Safety Disclosures. |
Not applicable.
Executive Officers of the Registrant.
The names, ages as of July 1, 2012, and current positions of the executive officers of the Company are listed below. All executive officers serve at the pleasure of the Board of Directors, with no fixed term of office. Unless otherwise indicated, each individual has served as an executive officer of the Company for more than five years.
Name | Age | Years with Company |
Position | Served as an Officer Since | ||||
Timothy P. Smucker |
68 | 43 | Chairman of the Board (1) | 1973 | ||||
Richard K. Smucker |
64 | 39 | Chief Executive Officer (2) | 1974 | ||||
Dennis J. Armstrong |
57 | 33 | Senior Vice President, Logistics and Operations Support (3) | 2007 | ||||
Mark R. Belgya |
51 | 27 | Senior Vice President and Chief Financial Officer (4) | 1997 | ||||
James A. Brown |
51 | 27 | Vice President, U.S. Grocery Sales (5) | 2009 | ||||
Vincent C. Byrd |
57 | 35 | President and Chief Operating Officer (6) | 1988 | ||||
John W. Denman |
55 | 33 | Vice President and Controller | 2005 | ||||
Barry C. Dunaway |
49 | 25 | Senior Vice President and Chief Administrative Officer (7) | 2001 | ||||
Tamara J. Fynan |
52 | 23 | Vice President, Marketing Services (8) | 2012 | ||||
Jeannette L. Knudsen |
42 | 9 | Vice President, General Counsel and Corporate Secretary (9) | 2009 | ||||
David J. Lemmon |
45 | 18 | Vice President and Managing Director, Canada (10) | 2012 | ||||
John F. Mayer |
56 | 32 | Vice President, U.S. Retail Sales (11) | 2004 | ||||
Kenneth A. Miller |
63 | 32 | Vice President and General Manager, Foodservice (12) | 2007 | ||||
Steven Oakland |
51 | 29 | President, International, Foodservice, and Natural Foods (13) | 1999 | ||||
Andrew G. Platt |
56 | 29 | Vice President, Information Services and Chief Information Officer | 2004 | ||||
Christopher P. Resweber |
50 | 24 | Senior Vice President, Corporate Communications and Public Affairs (14) | 2004 | ||||
Julia L. Sabin |
52 | 28 | Vice President, Industry and Government Affairs (15) | 2007 | ||||
Mark T. Smucker |
42 | 14 | President, U.S. Retail Coffee (16) | 2001 | ||||
Paul Smucker Wagstaff |
42 | 16 | President, U.S. Retail Consumer Foods (17) | 2001 | ||||
Albert W. Yeagley |
65 | 38 | Vice President, Industry and Government Affairs (18) | 2007 |
(1) | Mr. Timothy Smucker was elected to his present position in March 2011, effective as of August 16, 2011, having served as Chairman of the Board and Co-Chief Executive Officer since February 2001. |
(2) | Mr. Richard Smucker was elected to his present position in March 2011, effective as of August 16, 2011, having served as Executive Chairman, Co-Chief Executive Officer and President since August 2008. Prior to that time, he served as President and Co-Chief Executive Officer since February 2001. |
(3) | Mr. Armstrong was elected to his present position in October 2009, having served as Vice President, Logistics and Operations Support since February 2007. |
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(4) | Mr. Belgya was elected to his present position in October 2009, having served as Vice President and Chief Financial Officer since October 2008. Prior to that time, he served as Vice President, Chief Financial Officer and Treasurer since January 2005. |
(5) | Mr. Brown was elected to his present position in April 2009, effective as of June 30, 2009, having served as Director, National Sales, Grocery Market since February 2002. |
(6) | Mr. Byrd was elected to his present position in March 2011, effective as of May 1, 2011, having served as President, U.S. Retail Coffee since August 2008. Prior to that time, he served as Senior Vice President, Consumer Market since February 2004. |
(7) | Mr. Dunaway was elected to his present position in March 2011, effective as of May 1, 2011, having served as Senior Vice President, Corporate and Organizational Development since August 2008. Prior to that time, he served as Vice President, Corporate Development since November 2001. |
(8) | Ms. Fynan was elected to her present position in March 2012, effective as of May 1, 2012, having served as Vice President, Advertising and Creative Services since November 2009. Prior to that time, she served as Director, Advertising and Creative Services since April 2006. |
(9) | Ms. Knudsen was elected to her present position in August 2010, having served as Vice President, Deputy General Counsel and Corporate Secretary since April 2010, and as Corporate Secretary since April 2009. Prior to that time, she served as Securities and Acquisition Counsel and Assistant Secretary since November 2007. |
(10) | Mr. Lemmon was elected to his present position in March 2012, effective as of May 1, 2012, having served as Managing Director, Canada since May 2007. |
(11) | Mr. Mayer was elected to his present position in April 2009, effective as of June 30, 2009, having served as Vice President, Customer Development since August 2004. |
(12) | Mr. Miller was elected to his present position in August 2011, having served as Vice President, Alternate Channels since February 2007. |
(13) | Mr. Oakland was elected to his present position in March 2011, effective as of May 1, 2011, having served as President, U.S. Retail Smuckers, Jif and Hungry Jack since August 2008. Prior to that time, he served as Vice President and General Manager, Consumer Oils and Baking since November 2001. |
(14) | Mr. Resweber was elected to his present position in March 2012, effective as of May 1, 2012, having served as Vice President, Marketing Communications since July 2009 and as Vice President, Marketing Services since August 2004. |
(15) | Ms. Sabin was elected to her present position in March 2012, effective as of June 1, 2012, having served as Vice President and General Manager, Smucker Natural Foods, Inc. since February 2009 and Vice President and General Manager, Smucker Quality Beverages, Inc. since February 2007. |
(16) | Mr. Mark Smucker was elected to his present position in March 2011, effective as of May 1, 2011, having served as President, Special Markets since August 2008. Prior to that time, he served as Vice President, International since July 2007 and Vice President and Managing Director, Canada since May 2006. |
(17) | Mr. Wagstaff was elected to his present position in March 2011, effective as of May 1, 2011, having served as President, U.S. Retail Oils and Baking since August 2008. Prior to that time, he served as Vice President, Foodservice and Beverage Markets since May 2006. |
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(18) | Mr. Yeagley announced his retirement from his present position in March 2012, effective as of December 31, 2012, after having served as Vice President, Industry and Government Affairs since January 2009. Prior to that time, he served as Vice President, Quality Assurance since February 2007. |
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PART II
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
(a) The information pertaining to the market for the Company's common shares and other related shareholder information is incorporated herein by reference to the information set forth in the Company's 2012 Annual Report to Shareholders under the caption Stock Price Data on page 22 and the caption Comparison of Five-Year Cumulative Total Shareholder Return on page 23.
(b) Not applicable.
(c) Issuer Purchases of Equity Securities
Period |
(a) | (b) | (c) | (d) | ||||||||||||
Total number of shares purchased |
Average price paid per share |
Total number of shares purchased as part of publicly announced plans or programs |
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
|||||||||||||
February 1, 2012 - February 29, 2012 |
1,237,200 | $ | 74.11 | 1,237,200 | 5,707,100 | |||||||||||
March 1, 2012 - March 31, 2012 |
1,763,009 | 75.75 | 1,762,800 | 3,944,300 | ||||||||||||
April 1, 2012 - April 30, 2012 |
0 | 0 | 0 | 3,944,300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
3,000,209 | $ | 75.08 | 3,000,000 | 3,944,300 | |||||||||||
|
|
|
|
|
|
|
|
Information set forth in the table above represents activity in the Companys fourth fiscal quarter.
(a) | Shares in this column include shares repurchased as part of publicly announced plans as well as shares repurchased from stock plan recipients in lieu of cash payments. |
(c) | During the fourth quarter, the Company repurchased 3,000,000 common shares under the Companys share repurchase plan established in February 2012 in accordance with Rule 10b5-1 of the Exchange Act, completing the purchase of shares under the plan. |
(d) | At April 30, 2012, the Company had 3,944,300 common shares remaining for repurchase under its January 2012 Board of Directors authorization. From May 1, 2012 through June 18, 2012, no additional common shares were repurchased by the Company. |
Item 6. | Selected Financial Data. |
Five-year summaries of selected financial data for the Company and discussions of items which materially affect the comparability of the selected financial data are incorporated herein by reference to the information set forth in the Company's 2012 Annual Report to Shareholders under the following captions and page numbers: Five-Year Summary of Selected Financial Data on page 21, Note 1: Accounting Policies on pages 46 through 50, Note 2: Acquisitions on pages 50 through 52, and Note 4: Restructuring on pages 52 and 53.
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Management's discussion and analysis of financial condition and results of operations, including a discussion of liquidity and capital resources, and critical accounting estimates and policies, is incorporated herein by reference to the information set forth in the Company's 2012 Annual Report to Shareholders under the caption Managements Discussion and Analysis, on pages 24 through 36.
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Quantitative and qualitative disclosures about market risk are incorporated herein by reference to the information set forth in the Companys 2012 Annual Report to Shareholders under the caption Derivative Financial Instruments and Market Risk on pages 34 through 36.
Item 8. | Financial Statements and Supplementary Data. |
Consolidated financial statements of the Company at April 30, 2012 and 2011, and for each of the years in the three-year period ended April 30, 2012, with the report of independent registered public accounting firm and selected unaudited quarterly financial data, are incorporated herein by reference to the information set forth in the Company's 2012 Annual Report to Shareholders under the caption Summary of Quarterly Results of Operations on page 22 and beginning with Report of Management on Internal Control Over Financial Reporting on page 37 through Note 17: Common Shares on page 81.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. The Companys management, including the Companys principal executive officer and principal financial officer, evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of April 30, 2012 (the Evaluation Date). Based on that evaluation, the Companys principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to the Companys management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls. In connection with the acquisition of the Sara Lee foodservice business, the Company entered into a Transition Services Agreement (TSA) with Sara Lee Corporation to facilitate the transition of the acquired Sara Lee foodservice business to the Company. Under the TSA, Sara Lee Corporation has provided and will continue to provide, on a fee-for-service basis, specified services for a limited time following completion of the acquisition including, but not limited to: supply chain related activities, purchasing, data management, information technology services, and certain financial services and accounting. The Company has instituted controls related to the information obtained under the TSA in order to provide reasonable assurance as to the reliability of information that is used in financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Other than as previously described, there were no changes in the Companys internal control over financial reporting that occurred during the fourth quarter ended April 30, 2012, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements report on internal control over financial reporting and the attestation report of the Companys independent registered public accounting firm are set forth in the Companys 2012 Annual Report to Shareholders under the heading Report of Management on Internal Control Over Financial Reporting on page 37 and under the heading Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on page 38, which reports are incorporated herein by reference.
21
Item 9B. | Other Information. |
None.
22
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
The information required by this Item as to the directors of the Company, the Audit Committee, the Audit Committee financial expert, and compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information set forth under the captions Election of Directors, Corporate Governance, Board and Committee Meetings, and Ownership of Common Shares in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2012. Information required by Item 10 as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Board of Directors has adopted a Policy on Ethics and Conduct, last revised January 2012, which applies to the Companys directors, principal executive officer, principal financial officer, and principal accounting officer. The Board of Directors has adopted charters for each of the Audit, Executive Compensation, and Nominating and Corporate Governance committees and has also adopted Corporate Governance Guidelines. Copies of these documents are available on the Companys Web site (www.smuckers.com).
Item 11. | Executive Compensation. |
The information required by this Item is incorporated by reference to the information set forth under the captions Executive Compensation, Board and Committee Meetings, and Compensation Committee Interlocks and Insider Participation in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2012.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this Item is incorporated by reference to the information set forth under the captions Ownership of Common Shares and Equity Compensation Plan Information in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2012.
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this Item is incorporated by reference to the information set forth under the caption Related Party Transactions in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2012.
Item 14. | Principal Accountant Fees and Services. |
The information required by this Item is incorporated by reference to the information set forth under the captions Service Fees Paid to the Independent Registered Public Accounting Firm and Audit Committee Pre-approval Policies and Procedures in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 15, 2012.
23
PART IV
Item 15. | Exhibits and Financial Statement Schedules. |
(a)(1) | Financial Statements | |
See the Index to Financial Statements, which is included on page F-1 of this Report. | ||
(a)(2) | Financial Statement Schedules | |
Financial statement schedules are omitted because they are not applicable or because the information required is set forth in the Consolidated Financial Statements or notes thereto. | ||
(a)(3) | Exhibits | |
See the Index of Exhibits at page number 26 of this Report. |
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 25, 2012 | The J. M. Smucker Company | |||||
/s/ Mark R. Belgya | ||||||
By: | Mark R. Belgya | |||||
Senior Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
* |
||||
Richard K. Smucker | Chief Executive Officer and Director (Principal Executive Officer) | June 25, 2012 | ||
/s/ Mark R. Belgya |
||||
Mark R. Belgya | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | June 25, 2012 | ||
* |
||||
John W. Denman | Vice President and Controller (Principal Accounting Officer) | June 25, 2012 | ||
* |
||||
Timothy P. Smucker | Chairman of the Board | June 25, 2012 | ||
* |
||||
Vincent C. Byrd | Director | June 25, 2012 | ||
* |
||||
R. Douglas Cowan | Director | June 25, 2012 | ||
* |
||||
Kathryn W. Dindo | Director | June 25, 2012 | ||
* |
||||
Paul J. Dolan | Director | June 25, 2012 | ||
* |
||||
Nancy Lopez Knight | Director | June 25, 2012 | ||
* |
||||
Elizabeth Valk Long | Director | June 25, 2012 | ||
* |
||||
Gary A. Oatey | Director | June 25, 2012 | ||
* |
||||
Alex Shumate | Director | June 25, 2012 | ||
* |
||||
Mark T. Smucker | Director | June 25, 2012 | ||
* |
||||
William H. Steinbrink | Director | June 25, 2012 | ||
* |
||||
Paul Smucker Wagstaff | Director | June 25, 2012 |
* | The undersigned, by signing her name hereto, does sign and execute this report pursuant to the powers of attorney executed by the above-named officers and directors of the registrant, which are being filed herewith with the Securities and Exchange Commission on behalf of such officers and directors. |
Date: June 25, 2012 | /s/ Jeannette L. Knudsen | |||||
By: | Jeannette L. Knudsen | |||||
Attorney-in-Fact |
25
INDEX OF EXHIBITS
Exhibit |
Description | |
2.1 | Transaction Agreement, dated June 4, 2008, by and among The Procter & Gamble Company, The Folgers Coffee Company, the Company, and Moon Merger Sub, Inc. incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 5, 2008 (Commission File 001-5111). | |
2.2 | Separation Agreement, dated June 4, 2008, by and among The Procter & Gamble Company, The Folgers Coffee Company, and the Company incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 5, 2008 (Commission File 001-5111). | |
3.1 | Amended Articles of Incorporation of The J. M. Smucker Company incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (Commission File 001-5111). | |
3.2 | Amended Regulations of The J. M. Smucker Company, incorporated herein by reference to the Companys Current Report on Form 8-K filed on August 19, 2011 (Commission File 001-5111). | |
4.1 | Rights Agreement, dated as of May 20, 2009, by and between the Company and Computershare Trust Company, N.A., incorporated herein by reference to the Companys Registration Statement on Form 8-A filed on May 21, 2009 (Commission File 001-5111). | |
4.2 | Indenture, dated as of October 18, 2011, between the Company and U.S. Bank National Association, incorporated herein by reference to the Companys Current Report on Form 8-K filed on October 18, 2011 (Commission File 001-5111). | |
4.3 | First Supplemental Indenture, dated as of October 18, 2011, among the Company, the Guarantors, and U.S. Bank National Association, incorporated by reference to the Companys Current Report on Form 8-K filed on October 18, 2011 (Commission File 001-5111). | |
4.4 | Third Amended and Restated Intercreditor Agreement, dated June 11, 2010, among KeyBank National Association and Bank of Montreal, as administrative agents, and the other parties identified therein, incorporated herein by reference to the Companys Registration Statement on Form S-3 filed on October 13, 2011. | |
10.1 | 1987 Stock Option Plan incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 1994 (Commission File No. 001-5111).* | |
10.2 | Management Incentive Plan incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 1996 (Commission File No. 001-5111).* | |
10.3 | Nonemployee Director Stock Plan dated January 1, 1997 incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 1997 (Commission File No. 001-5111).* | |
10.4 | 1998 Equity and Performance Incentive Plan (as amended and restated effective as of June 6, 2005) incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 9, 2005 (Commission File No. 001-5111).* | |
10.5 | Form of Restricted Shares Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 9, 2005 (Commission File No. 001-5111).* |
26
INDEX OF EXHIBITS
Exhibit |
Description | |
10.6 | Form of Deferred Shares Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 9, 2005 (Commission File No. 001-5111).* | |
10.7 | Form of Deferred Stock Units Agreement incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (Commission File No. 001-5111).* | |
10.8 | The J. M. Smucker Company Top Management Supplemental Retirement Benefit Plan, restated as of January 1, 2009, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File 001-5111).* | |
10.9 | First Amendment to The J. M. Smucker Company Top Management Supplemental Retirement Plan, dated as of April 21, 2011, incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 25, 2011. | |
10.10 | Amended and Restated Consulting and Noncompete Agreement of Timothy P. Smucker, dated as of December 31, 2010, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File 001-5111).* | |
10.11 | Amended and Restated Consulting and Noncompete Agreement of Richard K. Smucker, dated as of December 31, 2010, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File 001-5111).* | |
10.12 | Termination Amendment to Amended and Restated Consulting and Noncompete Agreement of Timothy P. Smucker, dated as of April 25, 2011, incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 25, 2011. | |
10.13 | Termination Amendment to Amended and Restated Consulting and Noncompete Agreement of Richard K. Smucker, dated as of April 25, 2011, incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 25, 2011. | |
10.14 | The J. M. Smucker Company Voluntary Deferred Compensation Plan, amended and restated as of January 1, 2009, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File 001-5111).* | |
10.15 | Amended and Restated 1997 Stock-Based Incentive Plan incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 2005 (Commission File 001-5111).* | |
10.16 | Amended and Restated Nonemployee Director Stock Option Plan, effective August 19, 2005, incorporated herein by reference to the Companys Current Report on Form 8-K filed on August 24, 2005 (Commission File No. 001-5111).* | |
10.17 | The J. M. Smucker Company 2006 Equity Compensation Plan, effective August 17, 2006, incorporated herein by reference to the Companys Current Report on Form 8-K filed on August 21, 2006 (Commission File 001-5111).* | |
10.18 | Form of Restricted Stock Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 20, 2007 (Commission File No. 001-5111).* | |
10.19 | Form of Deferred Stock Units Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 20, 2007 (Commission File 001-5111).* |
27
INDEX OF EXHIBITS
Exhibit |
Description | |
10.20 | The J. M. Smucker Company 2010 Equity and Incentive Compensation Plan, incorporated herein by reference to the Companys Current Report on Form 8-K filed on August 20, 2010 (Commission File No. 001-5111).* | |
10.21 | Form of Restricted Stock Agreement incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2010 (Commission File No. 001-5111).* | |
10.22 | Form of Deferred Stock Units Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on October 28, 2010 (Commission File No. 001-5111).* | |
10.23 | Form of Restricted Stock Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 20, 2012 (Commission File 001-5111).* | |
10.24 | Form of Deferred Stock Unit Agreement incorporated herein by reference to the Companys Current Report on Form 8-K filed on April 20, 2012 (Commission File No. 001-5111).* | |
10.25 | Form of Special One-Time Grant Deferred Stock Units Agreement incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 2009 (Commission File No. 001-5111).* | |
10.26 | Form of Special One-ffTime Grant Restricted Stock Agreement incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 2009 (Commission File No. 001-5111).* | |
10.27 | Omnibus Amendment to Restricted Stock Agreements for Folgers Employees, dated as of November 4, 2010, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File No. 001-5111).* | |
10.28 | The J. M. Smucker Company Nonemployee Director Deferred Compensation Plan (Amended and Restated Effective January 1, 2007) incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2009 (Commission File 001-5111).* | |
10.29 | The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement Plan, restated as of May 1, 2008, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 (Commission File 001-5111).* | |
10.30 | Amended and Restated Asset Purchase and Sale Agreement, dated as of October 24, 2001, by and among General Mills, Inc., The Pillsbury Company, and International Multifoods Corporation incorporated herein by reference to International Multifoods Corporation Current Report on Form 8-K dated November 13, 2001 (Commission File No. 001-6699). | |
10.31 | Retail Trademark License Agreement, dated November 13, 2001, between The Pillsbury Company and International Multifoods Corporation incorporated herein by reference to International Multifoods Corporation Quarterly Report on Form 10-Q for the quarter ended December 1, 2001 (Commission File No. 001-6699). | |
10.32 | Amendment to Retail Trademark License Agreement, dated December 23, 2002, between The Pillsbury Company and International Multifoods Corporation incorporated herein by reference to International Multifoods Corporation Annual Report on Form 10-K for the year ended March 1, 2003 (Commission File No. 001-6699). |
28
INDEX OF EXHIBITS
Exhibit |
Description | |
10.33 | Closing Agreement, dated as of November 13, 2001, by and among General Mills, Inc., The Pillsbury Company, and International Multifoods Corporation, incorporated herein by reference to International Multifoods Corporation Current Report on Form 8-K dated November 13, 2001 (Commission File No. 001-6699). | |
10.34 | Omnibus Amendment Agreement, dated as of January 16, 2003, by and among General Mills, Inc., The Pillsbury Company, International Multifoods Corporation, and Sebesta Blomberg & Associates, Inc. incorporated herein by reference to International Multifoods Corporation Current Report on Form 8-K dated January 27, 2003 (Commission File No. 001-6699). | |
10.35 | Note Purchase Agreement, dated as of May 27, 2004, by and among the Company and each of the Purchasers signatory thereto incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2004 (Commission File 001-5111). | |
10.36 | First Amendment, dated May 31, 2007, to Note Purchase Agreement, dated as of May 27, 2004, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2007 (Commission File 001-5111). | |
10.37 | Second Amendment, dated October 23, 2008, to Note Purchase Agreement, dated as of May 27, 2004, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.38 | Third Amendment, dated November 6, 2008, to Note Purchase Agreement, dated as of May 27, 2004, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.39 | Fourth Amendment, dated June 11, 2010, to Note Purchase Agreement, dated as of May 27, 2004, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (Commission File 001-5111). | |
10.40 | Note Purchase Agreement, dated as of May 31, 2007, by and among the Company and each of the Purchasers signatory thereto, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2007 (Commission File 001-5111). | |
10.41 | First Amendment, dated October 23, 2008, to Note Purchase Agreement, dated as of May 31, 2007, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.42 | Second Amendment, dated November 6, 2008, to Note Purchase Agreement, dated as of May 31, 2007, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.43 | Third Amendment, dated June 11, 2010, to Note Purchase Agreement, dated as of May 31, 2007, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (Commission File 001-5111). | |
10.44 | Note Purchase Agreement, dated as of October 23, 2008, by and among the Company and each of the Purchasers signatory thereto, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). |
29
INDEX OF EXHIBITS
Exhibit |
Description | |
10.45 | First Amendment, dated November 6, 2008, to Note Purchase Agreement, dated as of October 23, 2008, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.46 | Second Amendment, dated June 11, 2010, to Note Purchase Agreement, dated as of October 23, 2008, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (Commission File 001-5111). | |
10.47 | Note Purchase Agreement, dated as of June 15, 2010, by and among the Company and each of the Purchasers signatory thereto, incorporated herein by reference to the Companys Periodic Report on Form 8-K filed on June 17, 2010 (Commission File 001-5111). | |
10.48 | Guaranty Agreement, dated November 6, 2008, by The Folgers Coffee Company in favor of the Noteholders defined therein, relating to the guaranty of the obligations of the Company under or in respect of the Note Purchase Agreement, dated as of May 27, 2004, as amended, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.49 | Guaranty Agreement, dated November 6, 2008, by The Folgers Coffee Company in favor of the Noteholders defined therein, relating to the guaranty of the obligations of the Company under or in respect of the Note Purchase Agreement, dated as of May 31, 2007, as amended, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.50 | Guaranty Agreement, dated November 6, 2008, by The Folgers Coffee Company in favor of the Noteholders defined therein, relating to the guaranty of the obligations of the Company under or in respect of the Note Purchase Agreement, dated as of October 23, 2008, as amended, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.51 | Purchase Agreement, dated January 13, 2005, by and among International Multifoods Corporation, Multifoods Brands, Inc., Fantasia Confections, Inc., Robin Hood Multifoods Corporation, the Company, Value Creation Partners, Inc., Best Brands Corp., and IMCB Corp., incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 2005 (Commission File 001-5111). | |
10.52 | Letter Agreement, dated January 24, 2005, and Amendment to Purchase Agreement, dated February 18, 2005, by and among International Multifoods Corporation, Multifoods Brands, Inc., Fantasia Confections, Inc., Smucker Foods of Canada Co. (formerly known as Robin Hood Multifoods Corporation), the Company, Value Creation Partners, Inc., Best Brands Corp., and IMCB Corp., incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended April 30, 2005 (Commission File 001-5111). | |
10.53 | Tax Matters Agreement between The Procter & Gamble Company, The Folgers Coffee Company, and the Company, dated November 6, 2008, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). | |
10.54 | Intellectual Property Matters Agreement between The Procter & Gamble Company and The Folgers Coffee Company, dated November 6, 2008, incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 (Commission File 001-5111). |
30
INDEX OF EXHIBITS
Exhibit |
Description | |
10.55 | Second Amended and Restated Credit Agreement, dated as of July 29, 2011, among the Company, Smucker Foods of Canada Corp., the Lenders, the Guarantors, and Bank of Montreal, as administrative agent for the Lenders, incorporated herein by reference to the Companys Current Report on Form 8-K filed on August 2, 2011 (Commission File 001-5111). | |
12.1 | Computation of Ratio of Earnings to Fixed Charges. | |
13 | Excerpts from 2012 Annual Report to Shareholders. Such Annual Report, except those portions thereof that are expressly incorporated herein by reference, is furnished for the information of the Commission only and is not deemed to be filed as part of this Annual Report on Form 10-K. | |
21 | Subsidiaries of the Registrant | |
23 | Consent of Independent Registered Public Accounting Firm | |
24 | Powers of Attorney | |
31.1 | Certifications of Richard K. Smucker pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certifications of Mark R. Belgya pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
* | Management contract or compensatory plan or arrangement. |
31
THE J. M. SMUCKER COMPANY
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS
Annual Report to Shareholders |
||||
Data incorporated by reference to the 2012 Annual Report to Shareholders of The J. M. Smucker Company: |
||||
Report of Management on Internal Control Over Financial Reporting |
37 | |||
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting |
38 | |||
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements |
39 | |||
Consolidated Balance Sheets at April 30, 2012 and 2011 |
42 - 43 | |||
For the years ended April 30, 2012, 2011, and 2010: |
||||
Statements of Consolidated Income |
41 | |||
Statements of Consolidated Cash Flows |
44 | |||
Statements of Consolidated Shareholders' Equity |
45 | |||
Notes to Consolidated Financial Statements |
46 -81 |
Financial statement schedules are omitted because they are not applicable or because the information required is set forth in the Consolidated Financial Statements or the notes thereto.
F-1
Exhibit 12.1
The J.M. Smucker Company
Computation of Ratio of Earnings to Fixed Charges
(in thousands of dollars)
Year Ended April 30, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
Earnings before fixed charges: |
||||||||||||||||||||
Income before income taxes |
701,158 | 717,164 | 730,753 | 396,065 | 254,788 | |||||||||||||||
Total fixed charges |
105,800 | 90,563 | 84,351 | 75,560 | 50,617 | |||||||||||||||
Less: capitalized interest |
(5,670 | ) | (1,778 | ) | (827 | ) | (900 | ) | (505 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings available for fixed charges |
801,288 | 805,949 | 814,277 | 470,725 | 304,900 | |||||||||||||||
Fixed charges: |
||||||||||||||||||||
Interest and other debt expense, net of capitalized interest |
81,296 | 69,594 | 65,187 | 62,478 | 42,145 | |||||||||||||||
Capitalized interest |
5,670 | 1,778 | 827 | 900 | 505 | |||||||||||||||
Estimated interest portion of rent expense (a) |
18,834 | 19,191 | 18,337 | 12,182 | 7,967 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total fixed charges |
105,800 | 90,563 | 84,351 | 75,560 | 50,617 | |||||||||||||||
Ratio of earnings to fixed charges |
7.6 | 8.9 | 9.7 | 6.2 | 6.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(a) | For purposes of this calculation, management estimates approximately one-third of rent expense is representative of interest expense. |
Exhibit 13
2012 Annual Report
Financial Highlights Year Ended April 30,
(Dollars in thousands, except per share data) 2012 2011
Net sales $ 5,525,782 $ 4,825,743
Net income and net income per common share:
Net income $ 459,744 $ 479,482
Net income per common share assuming dilution $ 4.06 $ 4.05
Income and income per common share excluding
special project costs:(1)
Income $ 535,579 $ 555,133
Income per common share assuming dilution $ 4.73 $ 4.69
Common shares outstanding at year end 110,284,715 114,172,122
Number of employees 4,850 4,500
Refer to Non-GAAP Measures located on page 32 in the Managements Discussion and Analysis section for a reconciliation to the comparable GAAP financial measure.
About Our Cover
Adams-Morgan
©2011-2012 Mitchell Johnson
Based in Silicon Valley, California, artist Mitchell Johnson is best known for his oil/linen paintings and his particular use of flat color and pattern. Johnsons paintings can be found in more than 600 collections across the U.S. and have appeared in many publications and feature films.
Contents
1 |
|
Why We Are, Who We Are
4 |
|
Letter to Shareholders
8 |
|
U.S. Retail Coffee
12
U.S. Retail Consumer Foods
16
International, Foodservice,
and Natural Foods
20
Sustainability and Smucker
21
Financial Review
24
Managements Discussion
and Analysis
41
Consolidated Financial Statements
46
Notes to Consolidated Financial Statements
Why We Are, Who We Are.
Our Culture
A culture of dotting the is and crossing the ts
Of doing the right things and doing things right
A culture of growth individual and as a company.
Its who we are. Its because of who we are.
Its a result of living our Basic Beliefs
Our Commitment to Each Other. To our consumers and to our customers.
As we look to the future of unlimited possibilities, we recognize the principles that are instrumental to our success
A culture deeply rooted in our Basic Beliefs
Guideposts for decisions at every level
Why we are who we are.
A culture that encourages commitment to each other
Clear communication and collaboration
Vision A culture of appreciation.
A family-sense of sharing in a job well done
Where every person makes a difference.
The J. M. Smucker Company 2012 Annual Repor t 1
2 The J.M. Smucker Company 2012 Annual Repor t
Helping to bring families together to share memorable meals and moments.
While strong financial results are important, we are driven by a greater purpose helping to bring families together to share memorable meals and moments. We know, and research demonstrates, that families who eat together are happier and healthier. Shared family meals can lead to better grades, healthier eating habits, fewer behavioral problems, less family tension, and closer family bonds. We continue to partner with Miriam Weinstein, author of The Surprising Power of Family Meals, to provide resources and assistance on making the most of your mealtime through our website, PowerOfFamilyMeals.com. By focusing our business around convenient, delicious, and nutritious products, we help support the power of the family meal and all its benefits.
The J.M. Smucker Company 2012 Annual Repor t 3
Dear ShareholDerS anD FrienDS:
Fiscal 2012 was a challenging yet successful year for The J. M. Smucker Company as we introduced a record number of products, acquired new businesses, and made brand investments all while achieving solid results and returning value to our shareholders. In fiscal 2012, sales reached a new high of $5.5 billion, an increase of 15 percent over fiscal 2011. Non-GAAP earnings rose to a record $4.73 per share compared to $4.69 in the prior year.
These accomplishments have been achieved despite a challenging economic environment where consumers have remained under pressure, impacting volume in many categories across the industry, and where commodity costs remained high. Our stability amid these challenges reflects the Smucker portfolio of iconic brands abilities to provide value and to meet a wide variety of consumer needs throughout the day. We are building upon this strength by continuing to make investments that deliver great products to our consumers and returns to our shareholders.
Brand Investment
Product innovation, in particular, is a major focus and one that our retail customers expect of us as category leaders. We met this expectation in fiscal 2012 by launching more than 60 new products. In total, the new products introduced in the last three years contributed more than five percent of fiscal 2012 net sales.
Product innovation is guided by our focus on meeting the diverse needs of our consumers for taste, health, convenience, and emotional fulfillment as these new product examples demonstrate:
Pillsbury ® Pink Lemonade Premium Cookie and Cake Mixes
Jif® To Go in Natural and Chocolate Silk varieties
Smuckers® Uncrustables® reduced sugar sandwiches on whole wheat
Folgers® Gourmet Selections® and Millstone® single-serve K-Cup® portion packs in new flavors
By focusing on innovation, Pillsbury has moved from the #3 to #2 position in the dessert baking mix category in recent years. The momentum behind our innovation efforts will continue in fiscal 2013, when we expect to introduce as many as 100 new products across our brand portfolio.
Our brand support extends to the marketplace through media investments that include both traditional outlets, such as television spots, and new digital approaches. Today, our brands host nearly 30 social media sites and seven mobile websites and offer a variety of interactive contact, such as eCoupon support, to consumers.
Business Expansion
Acquisitions have played a transformative role in our growth strategy over the past decade. During this time, for example, Smucker has become the #1 manufacturer of at-home retail coffee in the United States beginning with the acquisition of the Folgers brand in 2008. In fiscal 2012 we acquired Rowland Coffee Roasters, Inc., which included the leading Hispanic Café Bustelo® and Café Pilon® brands. With a successful integration completed during fiscal 2012, we are looking forward to further expanding distribution in key markets and leveraging the brands presence among a growing base of Hispanic consumers.
During the year, the Company completed the acquisition of a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corporation. This transaction added the market-leading liquid coffee concentrate and other hot beverages to our portfolio, which allows us to further participate in the away-from-home hot beverage business. Beyond these new offerings, this transaction has had a strategic impact on our foodservice business by nearly doubling its size, adding a direct sales force, and enhancing its ability to offer a full hot beverage solution to foodservice operators and customers. We were honored to welcome more than 400 employees to the Company as part of these two transactions.
Beyond North America, we continue to work toward the development of a long-term meaningful presence in China. New developments include the establishment of a Shanghai office and a minority investment in the privately owned Guilin Seamild Biologic Technology Development Co., Ltd. (Seamild). Our investment in
4 The J. M. Smucker Company 2012 Annual Repor t
this family-run business, which enjoys an established presence in the rapidly growing oats category, will be an effective vehicle to learn more about Chinese consumers and successful go-to-market strategies in China.
Supply Chain Investments
We remain focused on two important investment projects that will help drive operational excellence through our supply chain. We continue to move forward with the consolidation of our coffee manufac-turing operations and the expansion initiatives currently underway at our coffee manufacturing facilities in New Orleans, Louisiana. In fiscal 2013, a new state-of-the-art fruit spreads manufacturing facility is expected to become operational in Orrville, Ohio. Both projects will not only simplify our supply chain but also provide greater flexibility to support product innovation, improve quality, and optimize capacity to accommodate future growth.
Responsible Capital Management
These significant and ongoing levels of reinvestment underscore the long-term approach that we take in our business. Certain benefits from these investments are readily apparent, but most will emerge over time and serve us well for years to come. It is particularly gratifying to be able to support sizable reinvestment initiatives while also returning value to our share-holders. The ability to do both underscores our Companys strong cash generation capabilities in which we deploy cash between business growth initiatives and shareholder return programs. During fiscal 2012, these programs included a 15 percent increase in dividends paid per share and the repurchase of more than four million common shares for approximately $305 million.
Further focusing on our capital management structure, we entered the public debt market for the first time in Company history. In October 2011, we issued $750 million in 10-year notes to further our financial flexibility.
An Effective Combination for Growth
As one of our Basic Beliefs, Growth is defined as reaching for that potential whether through the acquisition of new brands, the development of new products and new markets, the discovery of new
management or manufacturing capabilities, or the personal growth and development of our people and their ideas. We know from experience that when we combine our unique culture with our strategy and our ability to implement, meaningful growth will be the result. Over the past decade, this combination has enabled Smucker to evolve from a fruit spreads-focused company with sales of $650 million into a broader business with multiple iconic brands, approaching sales of $6 billion. Going forward, we believe this same combination of culture, strategy, and implementation will continue to successfully evolve our business to ever-higher levels of performance. In the process, we will continue to fulfill Our Purpose helping to bring families together to share memorable meals and moments.
Looking ahead to fiscal 2013, our focus will be on further enhancing long-term shareholder value by:
A focus on innovation, with plans to significantly increase the number of new product introductions as compared to last year
Optimizing pricing, with an increased emphasis on opening price point offerings for value-conscious consumers
Realizing synergies from our supply chain optimization projects and recent acquisitions
Continuing to evolve our sustainability initiatives, particularly in the area of green coffee
As we close another successful year in the 100-plus-year history of The J.M. Smucker Company, we remain committed to our Basic Beliefs of Quality, People, Ethics, Growth, and Independence to guide both our strategic decisions and daily behavior. We believe the best is yet to come for our Company, and we appreciate your continued support. We extend our deepest gratitude to our constituents who contribute to our success consumers, customers, employees, suppliers, communities, and shareholders.
Sincerely,
Tim Smucker Richard Smucker
June 20, 2012
The J. M. Smucker Company 2012 Annual Repor t 5
Our portfolio encompasses numerous products that represent Our Vision to own and market food brands that hold the #1 position in their respective categories. Today, we hold branded leadership positions in seven categories in both the United States and Canada. Our products can be part of meals whether breakfast, lunch, dinner, or snack options throughout the day. We are honored to have our products be a part of your family meals and to be a staple in your pantries.
Memorable Meals and Moments
6 The J.M. Smucker Company 2012 Annual Repor t
U.S. Retail
Coffee
In just four short years, Smucker has established a wide-ranging presence in the coffee marketplace a presence that demonstrates our diverse portfolios ability to meet the unique needs of consumers by offering products in every segment with different blends, flavors, sizes, and convenience attributes. In addition to the Folgers, Millstone, and Dunkin Donuts ® brands, we are pleased to have added the leading Hispanic Café Bustelo and Café Pilon brands in the past year.
8 The J.M. Smucker Company 2012 Annual Repor t
Our Brands
The J.M. Smucker Company 2012 Annual Repor t 9
keeping the coffee market momentum going
Sales for U.S. Retail Coffee grew 19 percent during fiscal 2012, though higher commodity costs resulted in only a slight increase in segment profitability. Our coffee business continued to capitalize on the increasing popularity of the single-serve K-Cup® portion packs, which is creating attractive growth opportunities for us.
These single-serve packages account for more than $1 billion in annual sales in the channels we participate in today and continue to command more space on retail shelves. Our Folgers Gourmet Selections and Millstone branded K-Cups are following a similar trajectory, with sales increasing more than 200 percent in grocery, mass, drug store, and club retail channels last year to approximately $180 million on an annual basis.
During fiscal 2012, we further expanded our participation in the single-serve category by signing an agreement with Green Mountain Coffee Roasters to include Folgers Gourmet Selections and Millstone brands in its new Keurig Vue brewing system. We also introduced Folgers Instant Coffee Single-Serve Packets to provide consumers with another one-cup solution, and to complement the Folgers instant coffee line.
The Dunkin Donuts brand is another growth vehicle for our retail coffee business. With annual retail sales in excess of $300 million today, Dunkin Donuts has three of the top-10 premium coffee SKUs in measured channels; its 12-ounce original blend occupies the top slot, with sales nearly 2.5 times those of its closest competitor.
We remain focused on our core Folgers roast and ground products, which participate in the largest segment in the category, as well as on growing the Dunkin Donuts and Folgers Gourmet Selections brands in the premium segment. In addition, the popularity of Dunkin Donuts seasonal offerings is strong, with sales doubling from fiscal 2011 to fiscal 2012.
Our investment priorities include new product innovation and acquisitions that can tap into channels where we see growth potential, such as leveraging the Café Bustelo and Café Pilon brands in the growing Hispanic market. We also are focused on innovation in our supply chain through capital investments, which have already provided savings, and by realizing efficiencies with future integration of acquired facilities. Finally, we continue to work proactively on our strategy to balance cost management with the responsibilities of green coffee sustainability.
10 The J.M. Smucker Company 2012 Annual Repor t
U.S. Retail Coffee
U.S. Retail
Consumer
Foods
Our U.S. Retail Consumer Foods segment encompasses many of the industrys most iconic food brands, including category leaders such as Smuckers fruit spreads and Jif peanut butter, as well as Crisco® oils, Pillsbury baking mixes and frostings, Eagle Brand® sweetened condensed milk, Hungry Jack® pancake mix and syrup, and Martha White® and White Lily® flours.
12 The J.M. Smucker Company 2012 Annual Repor t
Our Brands
The J.M. Smucker Company 2012 Annual Repor t 13
Growing Through Ideas and Innovation
U.S. Retail Consumer Foods grew net sales seven percent during fiscal 2012 in the face of volume and competitive pressures, which resulted in a three percent decline in profitability. New product introductions were particularly helpful to sales growth during the year.
Recent new product launches have focused on consumers need for convenience, such as Jif To Go, which added natural and chocolate silk varieties during the past year. Jif also is expanding into the specialty nut butter category with the launch of two chocolate hazelnut spread varieties in fiscal 2013. This type of product innovation has helped us increase sales by over 60 percent since we acquired the Jif brand in 2002.
Pillsbury is another brand that has experienced significant growth since we acquired it seven years ago, with its baking mixes and frosting sales increasing approximately 50 percent. Recent product introductions have included Pink Lemonade Premium Cookie Mix, Sugar Free Classic Yellow Premium Cake Mix and Funfetti® Cookie Pop Kit.
Several new products launched in fiscal 2012, including sugar-free Smuckers fruit spread varieties with Truvia sweetener and Smuckers Uncrustables sandwiches whole wheat offering. We also responded to consumer requests with the introduction of two new flavors of Smuckers Orchards Finest® Preserves Pacific Grove Orange Marmalade Medley and Lakeside Raspberry Cranberry.
During the year, we continued to make significant investments in our manufacturing facilities. Our new Orrville manufacturing facility will begin initial production this summer and should result in long-term cost efficiencies. In addition, capacity expansions at our Smuckers Uncrustables sandwiches plant in Scottsville, Kentucky, will enable us to capitalize on continued strong consumer demand.
14 The J.M. Smucker Company 2012 Annual Repor t
U.S. Retail Consumer Foods
International,
Foodservice, and
natural foods
Our International operations include our Canadian and Mexican entities as well as the products we export to more than 65 countries for consumers around the world to enjoy. In Canada, we market many of our retail brands, including the #1 Bicks® and Robin Hood® brands. Our Foodservice division markets our branded products to foodservice operators. The Natural Foods business includes
R.W. Knudsen Family® and Santa Cruz Organic® juice brands, both pioneers in organic foods.
16 The J.M. Smucker Company 2012 Annual Repor t
Our Brands
The J.M. Smucker Company 2012 Annual Repor t 17
Realizing TRansfoRmaTional oppoRTuniTies
Our International, Foodservice, and Natural Foods segment experienced transformative change this year with the newly acquired Sara Lee North American foodservice away-from-home coffee and hot beverage business. Segment net sales increased 20 percent and segment profit grew six percent in fiscal 2012.
The acquisition of a majority of the north american foodservice coffee and hot beverage business of sara lee Corporation enables us to participate in the liquid coffee business, which is consistent with our desire to compete in all forms of coffee. given the importance of coffee to foodservice operators, this business enables us to offer a complete hot beverage solution to this customer base. The transaction also provided us with a unique opportunity to establish a multi-year innovation partnership with the new coffee company that will be spun off from sara lee, which will allow us to collaborate on new technologies in the liquid coffee category.
The integration of the sara lee foodservice coffee and hot beverage business was accomplished in record time, with major systems and processes transitioned within approximately four months. in addition, we redesigned our foodservice sales organization and go-to-market approach. The resulting direct sales team will significantly enhance our customer relationships, which, in turn, should create new long-term growth opportunities.
Coffee also was a big story for us in Canada this year with the launch of Folgers Gourmet Selections K-Cups, which was the Companys most successful Canadian new product launch in our history.
Consistent with Our Vision of maintaining a global perspective, we entered the Chinese marketplace in fiscal 2012 by making a minority investment in Seamild, a privately-owned manufacturer and marketer of oats products. as a leading retail oats brand in China, their oatmeal and oat-based products are sold primarily under the Seamild brand, with distribution in retail channels throughout China. as a leader in the oats category, their portfolio of quality, trusted products aligns with Our Vision to own and market food brands that hold the #1 market position in their respective categories.
18 The J. M. Smucker Company 2012 Annual Repor t
International, Foodservice,
and Natural Foods
Sustainability and
Smucker
Create a better tomorrow by focusing on preserving our culture, ensuring our long-term economic viability, limiting our environmental impact, and being socially responsible.
Our Sustainability Strategy succinctly states what we consider to be an inherent part of who we are as a Company and how we operate as a business. Since our founding in 1897, we have believed in doing the right things and doing things right. Today, this belief is manifested by such initiatives as working toward a set of five-year sustainability goals, participating in the Carbon Disclosure Project, leveraging our green coffee sustainability strategy, investing in supply chain efficiencies, and supporting the Boys & Girls Clubs of America, to name just a few. We invite all our constituents to read about these and other initiatives in our 2012 Corporate Responsibility Report available at smuckers.com.
20 The J.M. Smucker Company 2012 Annual Repor t
peanut butter blossoms CREAMY ALMOND CANDY
Grilled Tomato and Turkey Salad with
Basil Bruschetta Orange-Peanut Dressing
peanut butter jalapeÑo poppers Berry Yogurt Breakfast Bowls
CREAMY ALMOND CANDY
Prep Time: 10 min Makes: 3 1/4 POUNDS
1 1/2 pounds vanilla-flavored 1/8 teaspoon salt
candy coating* 1 teaspoon almond extract
1 (14 oz.) can Eagle Brand® Sweetened 3 cups (about 1 pound) whole almonds,
Condensed Milk toasted**
directions
MELT candy coating, sweetened condensed milk and salt in a heavy saucepan over low heat. Remove from heat. Stir in almond extract and then almonds.
SPREAD evenly onto wax-paper-lined 15 x 10-inch jellyroll pan. Chill 2 hours or until firm.
TURN onto cutting board. Peel off paper; cut into triangles or squares. Store leftovers tightly covered at room temperature.
MICROWAVE METHOD
COMBINE candy coating, sweetened condensed milk and salt in 2-quart glass measuring cup. Microwave on HIGH (100% power) 3 to 5 minutes, stirring after each
1 1/2 minutes. Stir until smooth. Proceed as above.
TIP: *Also called confectioners coating.
**To toast almonds, spread in single layer in heavy-bottomed skillet. Cook over medium heat 2 to 3 minutes, stirring frequently, until nuts are lightly browned. Remove from skillet immediately. Cool before using.
©/® The J.M. Smucker Company
Peanut butter blossoms
Prep Time: 30 min Cook Time: 10 min Makes: 4 DOZEN COOKIES
1/2 cup Crisco® Butter Flavor 1 3/4 cups Pillsbury BEST®
All-Vegetable Shortening All Purpose Flour
1/2 cup Jif® Creamy Peanut Butter 1 teaspoon baking soda
1/2 cup firmly packed brown sugar 1/2 teaspoon salt
1/2 cup granulated sugar Sugar
1 large egg 48 foil-wrapped milk chocolate
2 tablespoons milk pieces, unwrapped
1 teaspoon vanilla extract
directions
HEAT oven to 375°F.
CREAM together shortening, peanut butter, brown sugar and 1/2 cup sugar. Add egg, milk and vanilla. Beat well.
STIR together flour, baking soda and salt. Add to creamed mixture. Beat on low speed until stiff dough forms.
SHAPE into 1-inch balls. Roll in sugar. Place 2 inches apart on ungreased cookie sheet.
BAKE 10 to 12 minutes or until golden brown.
TOP each cookie immediately with an unwrapped chocolate piece, pressing down firmly so that cookie cracks around edge.
©/® The J.M. Smucker Company Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license.
Turkey Salad with
Orange Peanut Dressing
Prep Time: 30 min Makes: 5 (1/2 CUP) servings
Orange Peanut Dressing Turkey Salad
1 (10.25 oz.) jar Smuckers® Low Sugar 1 cup julienne-cut carrots
Reduced Sugar Sweet Orange 1/2 cup dried cranberries
Marmalade (1 cup) 1 pound fully cooked smoked turkey
1/3 cup Smuckers® Natural Chunky from deli, sliced 1/2-inch thick and
Peanut Butter, stirred cut into 1/2-inch cubes
1/4 cup light salad dressing 1 cup diced Granny Smith apples
1/4 cup low-fat sour cream 1 head Boston or Bibb lettuce,
1/2 teaspoon curry powder with leaves separated
directions
COMBINE marmalade, peanut butter, salad dressing, sour cream and curry powder in a mixing bowl until well blended.
ADD carrots, cranberries, turkey and apples to Orange Peanut Dressing in mixing bowl; stir well to combine. At this point, salad can be made ahead and held overnight
in the refrigerator.
FORM a lettuce cup using one or two lettuce leaves; place on salad plate. Fill with 1/2 cup turkey salad. Repeat to make 5 servings.
©/® The J.M. Smucker Company
Berry Yogurt Breakfast Bowls
Prep Time: 10 min Makes: 2 SERVINGS
1 medium banana, sliced 1/2 cup fresh red raspberries
1/4 cup Smuckers® Sugar Free Red 1 (6 oz.) container Greek-style vanilla yogurt
Raspberry Preserves 1/2 cup lowfat granola cereal
directions
DIVIDE banana slices evenly into two serving dishes. Stir preserves in small bowl until smooth. Fold in raspberries to coat. Spoon evenly over bananas.
STIR yogurt until smooth. Spoon evenly over raspberry mixture. Sprinkle with granola. Serve immediately.
Grilled Tomato and
Basil Bruschetta
Prep Time: 10 min Cook Time: 5 min Makes: 4 Servings
Crisco® Original No-Stick Cooking Spray 1 tablespoon cider or balsamic vinegar
4 to 6 ripe plum tomatoes, cored, seeded 2 tablespoons Crisco® 100% Extra Virgin
and diced Olive Oil
2 tablespoons chopped fresh basil 12 thin slices Italian or French bread
1/2 teaspoon salt Salt and pepper
1/4 teaspoon freshly ground black pepper Fresh basil leaves for garnish (optional)
directions
COAT grill grate or broiler pan with no-stick cooking spray. Heat grill or broiler.
TOSS tomatoes with basil, salt, pepper, vinegar and oil in medium bowl. Let stand 10 minutes to blend flavors.
SPRAY both sides of bread slices with no-stick cooking spray. Sprinkle with salt
and pepper. Grill about 5 minutes, turning once, or just until bread is lightly browned and crisp.
TOP with tomato mixture. Garnish with fresh basil leaves, if desired.
©/® The J.M. Smucker Company
peanut butter jalapeÑo poppers
Prep Time: 30 min Cook Time: 10 min Makes: 35 POPPERS
5 fresh jalapeño peppers, seeded and 2 eggs, beaten
chopped 1/2 cup Pillsbury BEST® All Purpose Flour
1 cup shredded Monterey Jack cheese 1 cup plain panko breadcrumbs
1/3 cup Jif® Creamy Peanut Butter Crisco® Pure Peanut Oil
2 tablespoons Crosse & Blackwell® Salt, to taste
Major Greys Chutney 1 cup sour cream
1/2 teaspoon Cajun seasoning 3 tablespoons minced fresh chives
directions
STIR jalapeños, cheese, peanut butter, chutney and Cajun seasoning in medium bowl until blended. Shape into 1/2-inch round balls.
PLACE egg, flour and breadcrumbs into three separate small bowls. Coat each ball in flour, then egg and breadcrumbs. Chill on baking sheet 1 hour.
HEAT 2 inches oil to 350°F in a 6-quart saucepan. Fry poppers 1 1/2 to 2 minutes each or until golden brown. Drain on paper towel. Season with salt.
COMBINE sour cream and chives. Serve with poppers.
©/® The J.M. Smucker Company
©/® The J.M. Smucker Company Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license.
2012 FINANCIAL REVIEW
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the five years in the period ended April 30, 2012. The selected financial data was derived from the consolidated financial statements and should be read in conjunction with the Results of Operations and Financial Condition sections of Managements Discussion and Analysis and the consolidated financial statements and notes thereto.
Year Ended April 30, | ||||||||||||||||||||
(Dollars in thousands, except per share data) |
2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Statements of Income: |
||||||||||||||||||||
Net sales |
$ | 5,525,782 | $ | 4,825,743 | $ | 4,605,289 | $ | 3,757,933 | $ | 2,524,774 | ||||||||||
Gross profit |
$ | 1,845,223 | $ | 1,798,517 | $ | 1,786,690 | $ | 1,251,429 | $ | 782,164 | ||||||||||
% of net sales |
33.4 | % | 37.3 | % | 38.8 | % | 33.3 | % | 31.0 | % | ||||||||||
Operating income |
$ | 778,283 | $ | 784,272 | $ | 790,909 | $ | 452,275 | $ | 284,559 | ||||||||||
% of net sales |
14.1 | % | 16.3 | % | 17.2 | % | 12.0 | % | 11.3 | % | ||||||||||
Net income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | $ | 265,953 | $ | 170,379 | ||||||||||
Financial Position: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 229,708 | $ | 319,845 | $ | 283,570 | $ | 456,693 | $ | 171,541 | ||||||||||
Total assets |
9,115,226 | 8,324,585 | 7,974,853 | 8,192,161 | 3,129,881 | |||||||||||||||
Total debt |
2,070,543 | 1,304,039 | 910,000 | 1,536,726 | 789,684 | |||||||||||||||
Shareholders equity |
5,163,386 | 5,292,363 | 5,326,320 | 4,939,931 | 1,799,853 | |||||||||||||||
Statements of Cash Flows: |
||||||||||||||||||||
Net cash provided by operating activities |
$ | 730,929 | $ | 391,562 | $ | 713,478 | $ | 446,993 | $ | 182,918 | ||||||||||
Capital expenditures |
274,244 | 180,080 | 136,983 | 108,907 | 76,430 | |||||||||||||||
Quarterly dividends paid |
213,667 | 194,024 | 166,224 | 110,668 | 68,074 | |||||||||||||||
Purchase of treasury shares |
315,780 | 389,135 | 5,569 | 4,025 | 152,521 | |||||||||||||||
Share Data: |
||||||||||||||||||||
Weighted-average shares outstanding |
113,263,951 | 118,165,751 | 118,951,434 | 85,448,592 | 56,641,810 | |||||||||||||||
Weighted-average shares outstanding assuming dilution |
113,313,567 | 118,276,086 | 119,081,445 | 85,547,530 | 56,873,492 | |||||||||||||||
Dividends declared per common share |
$ | 1.92 | $ | 1.68 | $ | 1.45 | $ | 6.31 | $ | 1.22 | ||||||||||
Earnings per Common Share: |
||||||||||||||||||||
Net income |
$ | 4.06 | $ | 4.06 | $ | 4.15 | $ | 3.11 | $ | 3.01 | ||||||||||
Net income assuming dilution |
4.06 | 4.05 | 4.15 | 3.11 | 3.00 | |||||||||||||||
Non-GAAP Measures: (1) |
||||||||||||||||||||
Gross profit excluding special project costs |
$ | 1,888,385 | $ | 1,852,606 | $ | 1,790,560 | $ | 1,251,429 | $ | 783,674 | ||||||||||
% of net sales |
34.2 | % | 38.4 | % | 38.9 | % | 33.3 | % | 31.0 | % | ||||||||||
Operating income excluding special project costs |
$ | 893,938 | $ | 897,423 | $ | 830,312 | $ | 535,170 | $ | 297,273 | ||||||||||
% of net sales |
16.2 | % | 18.6 | % | 18.0 | % | 14.2 | % | 11.8 | % | ||||||||||
Income and income per common share excluding special project costs: |
||||||||||||||||||||
Income |
$ | 535,579 | $ | 555,133 | $ | 520,782 | $ | 321,617 | $ | 178,881 | ||||||||||
Income per common share assuming dilution |
$ | 4.73 | $ | 4.69 | $ | 4.37 | $ | 3.76 | $ | 3.15 |
(1) | Refer to Non-GAAP Measures located on page 32 in the Managements Discussion and Analysis section for a reconciliation to the comparable GAAP financial measure. |
The J. M. Smucker Company 2012 Annual Report 21 |
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
The J. M. Smucker Company
The following is a summary of unaudited quarterly results of operations for the years ended April 30, 2012 and 2011.
(Dollars in thousands, except per share data) |
Quarter Ended | Net Sales | Gross Profit | Net Income | Net Income per Common Share |
Net Income per Common Share Assuming Dilution |
||||||||||||||||||
2012 |
July 31, 2011 | $ | 1,188,883 | $ | 431,084 | $ | 111,523 | $ | 0.98 | $ | 0.98 | |||||||||||||
October 31, 2011 | 1,513,905 | 498,669 | 127,247 | 1.12 | 1.12 | |||||||||||||||||||
January 31, 2012 | 1,467,641 | 465,685 | 116,844 | 1.03 | 1.03 | |||||||||||||||||||
April 30, 2012 | 1,355,353 | 449,785 | 104,130 | 0.93 | 0.93 | |||||||||||||||||||
2011 |
July 31, 2010 | $ | 1,047,312 | $ | 408,435 | $ | 102,881 | $ | 0.86 | $ | 0.86 | |||||||||||||
October 31, 2010 | 1,278,913 | 494,670 | 149,726 | 1.25 | 1.25 | |||||||||||||||||||
January 31, 2011 | 1,312,351 | 474,414 | 131,995 | 1.12 | 1.11 | |||||||||||||||||||
April 30, 2011 | 1,187,167 | 420,998 | 94,880 | 0.82 | 0.82 |
Annual net income per common 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 Companys common shares are listed on the New York Stock Exchange ticker symbol SJM. The table below presents the high and low market prices for the shares and the quarterly dividends declared. There were approximately 284,900 shareholders as of June 15, 2012, of which approximately 51,800 were registered holders of common shares.
Quarter Ended | High | Low | Dividends | |||||||||||||
2012 |
July 31, 2011 | $ | 80.26 | $ | 73.76 | $ | 0.48 | |||||||||
October 31, 2011 | 78.62 | 66.43 | 0.48 | |||||||||||||
January 31, 2012 | 81.40 | 71.24 | 0.48 | |||||||||||||
April 30, 2012 | 81.97 | 70.50 | 0.48 | |||||||||||||
2011 |
July 31, 2010 | $ | 63.75 | $ | 53.27 | $ | 0.40 | |||||||||
October 31, 2010 | 64.55 | 57.20 | 0.40 | |||||||||||||
January 31, 2011 | 66.28 | 60.46 | 0.44 | |||||||||||||
April 30, 2011 | 75.46 | 61.16 | 0.44 |
22 The J. M. Smucker Company 2012 Annual Report |
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN
The J. M. Smucker Company
Among The J. M. Smucker Company, the S&P 500 Index, and the S&P Packaged Foods & Meats Index
April 30, | ||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||||||
The J. M. Smucker Company |
$ | 100.00 | $ | 91.39 | $ | 81.44 | $ | 129.79 | $ | 163.91 | $ | 178.21 | ||||||||||||
S&P 500 |
100.00 | 95.32 | 61.66 | 85.61 | 100.36 | 105.13 | ||||||||||||||||||
S&P Packaged Foods & Meats |
100.00 | 98.19 | 77.72 | 108.80 | 126.50 | 143.03 |
The above graph compares the cumulative total shareholder return for the five years ended April 30, 2012, for the Companys common shares, the S&P 500 Index, and the S&P Packaged Foods & Meats Index. These figures assume all dividends are reinvested when received and are based on $100 invested in the Companys common shares and the referenced index funds on April 30, 2007.
Copyright© 2012 Standard & Poors, a division of The McGraw-Hill Companies Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
The J. M. Smucker Company 2012 Annual Report 23 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
24 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
Year Ended April 30, | ||||||||||||||||||||
(Dollars in millions, except per share data) |
2012 | 2011 | 2010 | 2012 % Increase (Decrease) |
2011 % Increase (Decrease) |
|||||||||||||||
Net sales |
$ | 5,525.8 | $ | 4,825.7 | $ | 4,605.3 | 15 | % | 5 | % | ||||||||||
Gross profit |
$ | 1,845.2 | $ | 1,798.5 | $ | 1,786.7 | 3 | % | 1 | % | ||||||||||
% of net sales |
33.4 | % | 37.3 | % | 38.8 | % | ||||||||||||||
Operating income |
$ | 778.3 | $ | 784.3 | $ | 790.9 | (1 | )% | (1 | )% | ||||||||||
% of net sales |
14.1 | % | 16.3 | % | 17.2 | % | ||||||||||||||
Net income: |
||||||||||||||||||||
Net income |
$ | 459.7 | $ | 479.5 | $ | 494.1 | (4 | )% | (3 | )% | ||||||||||
Net income per common share assuming dilution |
$ | 4.06 | $ | 4.05 | $ | 4.15 | | % | (2 | )% | ||||||||||
Gross profit excluding special project costs (1) |
$ | 1,888.4 | $ | 1,852.6 | $ | 1,790.6 | 2 | % | 3 | % | ||||||||||
% of net sales |
34.2 | % | 38.4 | % | 38.9 | % | ||||||||||||||
Operating income excluding special project costs (1) |
$ | 893.9 | $ | 897.4 | $ | 830.3 | | % | 8 | % | ||||||||||
% of net sales |
16.2 | % | 18.6 | % | 18.0 | % | ||||||||||||||
Income excluding special project costs: (1) |
||||||||||||||||||||
Income |
$ | 535.6 | $ | 555.1 | $ | 520.8 | (4 | )% | 7 | % | ||||||||||
Income per common share assuming dilution |
$ | 4.73 | $ | 4.69 | $ | 4.37 | 1 | % | 7 | % |
(1) | Refer to Non-GAAP Measures located on page 32 in the Managements Discussion and Analysis section for a reconciliation to the comparable GAAP financial measure. |
The J. M. Smucker Company 2012 Annual Report 25 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
26 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The J. M. Smucker Company 2012 Annual Report 27 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
Year Ended April 30, | ||||||||||||||||||||
(Dollars in millions) |
2012 | 2011 | 2010 | 2012 % Increase (Decrease) |
2011 % Increase (Decrease) |
|||||||||||||||
Net sales: |
||||||||||||||||||||
U.S. Retail Coffee |
$ | 2,297.7 | $ | 1,930.9 | $ | 1,700.5 | 19 | % | 14 | % | ||||||||||
U.S. Retail Consumer Foods |
2,094.5 | 1,953.0 | 2,004.7 | 7 | (3 | ) | ||||||||||||||
International, Foodservice, and Natural Foods |
1,133.6 | 941.8 | 900.1 | 20 | 5 | |||||||||||||||
Segment profit: |
||||||||||||||||||||
U.S. Retail Coffee |
$ | 543.0 | $ | 536.1 | $ | 484.0 | 1 | % | 11 | % | ||||||||||
U.S. Retail Consumer Foods |
393.3 | 406.5 | 407.7 | (3 | ) | | ||||||||||||||
International, Foodservice, and Natural Foods |
168.6 | 159.6 | 140.4 | 6 | 14 | |||||||||||||||
Segment profit margin: |
||||||||||||||||||||
U.S. Retail Coffee |
23.6 | % | 27.8 | % | 28.5 | % | ||||||||||||||
U.S. Retail Consumer Foods |
18.8 | 20.8 | 20.3 | |||||||||||||||||
International, Foodservice, and Natural Foods |
14.9 | 16.9 | 15.6 |
28 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The J. M. Smucker Company 2012 Annual Report 29 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
30 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The J. M. Smucker Company 2012 Annual Report 31 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
Year Ended April 30, | ||||||||||||||||||||
(Dollars in thousands, except per share data) |
2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Reconciliation to gross profit: |
||||||||||||||||||||
Gross profit |
$ | 1,845,223 | $ | 1,798,517 | $ | 1,786,690 | $ | 1,251,429 | $ | 782,164 | ||||||||||
Cost of products sold restructuring |
38,552 | 54,089 | 3,870 | | 1,510 | |||||||||||||||
Cost of products sold merger and integration |
4,610 | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit excluding special project costs |
$ | 1,888,385 | $ | 1,852,606 | $ | 1,790,560 | $ | 1,251,429 | $ | 783,674 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reconciliation to operating income: |
||||||||||||||||||||
Operating income |
$ | 778,283 | $ | 784,272 | $ | 790,909 | $ | 452,275 | $ | 284,559 | ||||||||||
Cost of products sold restructuring |
38,552 | 54,089 | 3,870 | | 1,510 | |||||||||||||||
Cost of products sold merger and integration |
4,610 | | | | | |||||||||||||||
Other restructuring costs |
42,589 | 47,868 | 1,841 | 10,229 | 3,237 | |||||||||||||||
Other merger and integration costs |
29,904 | 11,194 | 33,692 | 72,666 | 7,967 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income excluding special project costs |
$ | 893,938 | $ | 897,423 | $ | 830,312 | $ | 535,170 | $ | 297,273 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reconciliation to net income: |
||||||||||||||||||||
Net income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | $ | 265,953 | $ | 170,379 | ||||||||||
Income taxes |
241,414 | 237,682 | 236,615 | 130,112 | 84,409 | |||||||||||||||
Cost of products sold restructuring |
38,552 | 54,089 | 3,870 | | 1,510 | |||||||||||||||
Cost of products sold merger and integration |
4,610 | | | | | |||||||||||||||
Other restructuring costs |
42,589 | 47,868 | 1,841 | 10,229 | 3,237 | |||||||||||||||
Other merger and integration costs |
29,904 | 11,194 | 33,692 | 72,666 | 7,967 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes excluding special project costs |
$ | 816,813 | $ | 830,315 | $ | 770,156 | $ | 478,960 | $ | 267,502 | ||||||||||
Income taxes, as adjusted |
281,234 | 275,182 | 249,374 | 157,343 | 88,621 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income excluding special project costs |
$ | 535,579 | $ | 555,133 | $ | 520,782 | $ | 321,617 | $ | 178,881 | ||||||||||
Weighted-average shares assuming dilution |
113,313,567 | 118,276,086 | 119,081,445 | 85,547,530 | 56,873,492 | |||||||||||||||
Income per common share excluding special project costs assuming dilution |
$ | 4.73 | $ | 4.69 | $ | 4.37 | $ | 3.76 | $ | 3.15 | ||||||||||
|
|
|
|
|
|
|
|
|
|
32 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The J. M. Smucker Company 2012 Annual Report 33 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
34 The J. M. Smucker Company 2012 Annual Report |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The J. M. Smucker Company 2012 Annual Report 35 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The J. M. Smucker Company
36 The J. M. Smucker Company 2012 Annual Report |
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The J. M. Smucker Company
Shareholders
The J. M. Smucker Company
Management of The J. M. Smucker Company is responsible for establishing and maintaining adequate accounting and internal control systems over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended. The Companys internal control system is designed to provide reasonable assurance that the Company has the ability to record, process, summarize, and report reliable financial information on a timely basis.
The Companys management, with the participation of the principal financial and executive officers, assessed the effectiveness of the Companys internal control over financial reporting as of April 30, 2012. In making this assessment, management used the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Based on the Companys assessment of internal control over financial reporting under the COSO criteria, management concluded the Companys internal control over financial reporting was effective as of April 30, 2012.
Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of the Companys internal control over financial reporting as of April 30, 2012, and their report thereon is included on page 38 of this report.
Richard K. Smucker | Mark R. Belgya | |||||
Chief Executive Officer | Senior Vice President and | |||||
Chief Financial Officer |
The J. M. Smucker Company 2012 Annual Report 37 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The J. M. Smucker Company
Board of Directors and Shareholders
The J. M. Smucker Company
We have audited The J. M. Smucker Companys internal control over financial reporting as of April 30, 2012, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The J. M. Smucker Companys management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The J. M. Smucker Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The J. M. Smucker Company as of April 30, 2012 and 2011, and the related statements of consolidated income, shareholders equity, and cash flows for each of the three years in the period ended April 30, 2012, and our report dated June 20, 2012, expressed an unqualified opinion thereon.
Akron, Ohio
June 20, 2012
38 The J. M. Smucker Company 2012 Annual Report |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
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, 2012 and 2011, and the related statements of consolidated income, shareholders equity, and cash flows for each of the three years in the period ended April 30, 2012. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The J. M. Smucker Company at April 30, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 30, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), The
J. M. Smucker Companys internal control over financial reporting as of April 30, 2012, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 20, 2012, expressed an unqualified opinion thereon.
Akron, Ohio
June 20, 2012
The J. M. Smucker Company 2012 Annual Report 39 |
REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The J. M. Smucker Company
Shareholders
The J. M. Smucker Company
Management of The J. M. Smucker Company is responsible for the preparation, integrity, accuracy, and consistency of the consolidated financial statements and the related financial information in this report. Such information has been prepared in accordance with U.S. generally accepted accounting principles and is based on our best estimates and judgments.
The Company maintains systems of internal accounting controls supported by formal policies and procedures that are communicated throughout the Company. There is a program of audits performed by the Companys internal audit staff designed to evaluate the adequacy of and adherence to these controls, policies, and procedures.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Companys financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Management has made all financial records and related data available to Ernst & Young LLP during its audit.
The Companys audit committee, comprised of three non-employee members of the Board of Directors, meets regularly with the independent registered public accounting firm and management to review the work of the internal audit staff and the work, audit scope, timing arrangements, and fees of the independent registered public accounting firm. The audit committee also regularly satisfies itself as to the adequacy of controls, systems, and financial records. The manager of the internal audit department is required to report directly to the chair of the audit committee as to internal audit matters.
It is the Companys best judgment that its policies and procedures, its program of internal and independent audits, and the oversight activity of the audit committee work together to provide reasonable assurance that the operations of the Company are conducted according to law and in compliance with the high standards of business ethics and conduct to which the Company subscribes.
Richard K. Smucker | Mark R. Belgya | |||||
Chief Executive Officer | Senior Vice President and | |||||
Chief Financial Officer |
40 The J. M. Smucker Company 2012 Annual Report |
STATEMENTS OF CONSOLIDATED INCOME
The J. M. Smucker Company
Year Ended April 30, | ||||||||||||
(Dollars in thousands, except per share data) |
2012 | 2011 | 2010 | |||||||||
Net sales |
$ | 5,525,782 | $ | 4,825,743 | $ | 4,605,289 | ||||||
Cost of products sold |
3,637,397 | 2,973,137 | 2,814,729 | |||||||||
Cost of products sold restructuring |
38,552 | 54,089 | 3,870 | |||||||||
Cost of products sold merger and integration |
4,610 | | | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
1,845,223 | 1,798,517 | 1,786,690 | |||||||||
Selling, distribution, and administrative expenses |
892,683 | 863,114 | 878,221 | |||||||||
Amortization |
88,060 | 73,844 | 73,657 | |||||||||
Impairment charges |
4,590 | 17,599 | 11,658 | |||||||||
Other restructuring costs |
42,589 | 47,868 | 1,841 | |||||||||
Other merger and integration costs |
29,904 | 11,194 | 33,692 | |||||||||
Loss (gain) on divestitures |
11,287 | | (13,607 | ) | ||||||||
Other operating (income) expense net |
(2,173 | ) | 626 | 10,319 | ||||||||
|
|
|
|
|
|
|||||||
Operating Income |
778,283 | 784,272 | 790,909 | |||||||||
Interest income |
1,504 | 2,512 | 2,793 | |||||||||
Interest expense |
(81,296 | ) | (69,594 | ) | (65,187 | ) | ||||||
Other income (expense) net |
2,667 | (26 | ) | 2,238 | ||||||||
|
|
|
|
|
|
|||||||
Income Before Income Taxes |
701,158 | 717,164 | 730,753 | |||||||||
Income taxes |
241,414 | 237,682 | 236,615 | |||||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | ||||||
|
|
|
|
|
|
|||||||
Earnings per common share: |
||||||||||||
Net Income |
$ | 4.06 | $ | 4.06 | $ | 4.15 | ||||||
|
|
|
|
|
|
|||||||
Net Income Assuming Dilution |
$ | 4.06 | $ | 4.05 | $ | 4.15 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
The J. M. Smucker Company 2012 Annual Report 41 |
CONSOLIDATED BALANCE SHEETS
The J. M. Smucker Company
ASSETS | ||||||||
April 30, | ||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 229,708 | $ | 319,845 | ||||
Trade receivables, less allowance for doubtful accounts |
347,518 | 344,410 | ||||||
Inventories: |
||||||||
Finished products |
643,517 | 518,243 | ||||||
Raw materials |
318,059 | 345,336 | ||||||
|
|
|
|
|||||
961,576 | 863,579 | |||||||
Other current assets |
104,663 | 109,165 | ||||||
|
|
|
|
|||||
Total Current Assets |
1,643,465 | 1,636,999 | ||||||
|
|
|
|
|||||
Property, Plant, and Equipment |
||||||||
Land and land improvements |
89,599 | 77,074 | ||||||
Buildings and fixtures |
460,242 | 347,950 | ||||||
Machinery and equipment |
1,160,307 | 1,022,670 | ||||||
Construction in progress |
142,983 | 76,778 | ||||||
|
|
|
|
|||||
1,853,131 | 1,524,472 | |||||||
Accumulated depreciation |
(757,042 | ) | (656,590 | ) | ||||
|
|
|
|
|||||
Total Property, Plant, and Equipment |
1,096,089 | 867,882 | ||||||
|
|
|
|
|||||
Other Noncurrent Assets |
||||||||
Goodwill |
3,054,618 | 2,812,746 | ||||||
Other intangible assets net |
3,187,007 | 2,940,010 | ||||||
Other noncurrent assets |
134,047 | 66,948 | ||||||
|
|
|
|
|||||
Total Other Noncurrent Assets |
6,375,672 | 5,819,704 | ||||||
|
|
|
|
|||||
$ | 9,115,226 | $ | 8,324,585 | |||||
|
|
|
|
See notes to consolidated financial statements.
42 The J. M. Smucker Company 2012 Annual Report |
CONSOLIDATED BALANCE SHEETS
The J. M. Smucker Company
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
April 30, | ||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 274,725 | $ | 234,916 | ||||
Accrued compensation |
83,261 | 62,313 | ||||||
Accrued trade marketing and merchandising |
62,111 | 62,588 | ||||||
Dividends payable |
52,937 | 50,236 | ||||||
Current portion of long-term debt |
50,000 | | ||||||
Other current liabilities |
93,938 | 72,623 | ||||||
|
|
|
|
|||||
Total Current Liabilities |
616,972 | 482,676 | ||||||
|
|
|
|
|||||
Noncurrent Liabilities |
||||||||
Long-term debt |
2,020,543 | 1,304,039 | ||||||
Defined benefit pensions |
147,551 | 98,722 | ||||||
Other postretirement benefits |
68,829 | 59,789 | ||||||
Deferred income taxes |
992,692 | 1,042,823 | ||||||
Other noncurrent liabilities |
105,253 | 44,173 | ||||||
|
|
|
|
|||||
Total Noncurrent Liabilities |
3,334,868 | 2,549,546 | ||||||
|
|
|
|
|||||
Shareholders Equity |
||||||||
Serial preferred shares no par value: |
||||||||
Authorized 6,000,000 shares; outstanding none |
| | ||||||
Common shares no par value: |
||||||||
Authorized 150,000,000 shares; outstanding 110,284,715 at April 30, 2012, and 114,172,122 at April 30, 2011 (net of 18,320,450 and 14,432,043 treasury shares, respectively), at stated value |
27,571 | 28,543 | ||||||
Additional capital |
4,261,171 | 4,396,592 | ||||||
Retained income |
961,207 | 866,933 | ||||||
Amount due from ESOP Trust |
(2,572 | ) | (3,334 | ) | ||||
Accumulated other comprehensive (loss) income |
(83,991 | ) | 3,629 | |||||
|
|
|
|
|||||
Total Shareholders Equity |
5,163,386 | 5,292,363 | ||||||
|
|
|
|
|||||
$ | 9,115,226 | $ | 8,324,585 | |||||
|
|
|
|
See notes to consolidated financial statements.
The J. M. Smucker Company 2012 Annual Report 43 |
STATEMENTS OF CONSOLIDATED CASH FLOWS
The J. M. Smucker Company
Year Ended April 30, | ||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2010 | |||||||||
Operating Activities |
||||||||||||
Net income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | ||||||
Adjustments to reconcile net income to net cash provided by operations: |
||||||||||||
Depreciation |
120,366 | 112,226 | 108,225 | |||||||||
Depreciation restructuring and merger and integration |
38,570 | 53,569 | 3,870 | |||||||||
Amortization |
88,060 | 73,844 | 73,657 | |||||||||
Impairment charges |
4,590 | 17,599 | 11,658 | |||||||||
Share-based compensation expense |
21,711 | 24,044 | 25,949 | |||||||||
Other noncash restructuring charges |
8,030 | 8,540 | | |||||||||
Loss on sale of assets net |
3,390 | 2,867 | 5,776 | |||||||||
Loss (gain) on divestitures |
11,287 | | (13,607 | ) | ||||||||
Deferred income tax benefit |
(17,218 | ) | (59,801 | ) | (39,320 | ) | ||||||
Changes in assets and liabilities, net of effect from businesses acquired: |
||||||||||||
Trade receivables |
9,286 | (102,625 | ) | 31,521 | ||||||||
Inventories |
(48,189 | ) | (204,159 | ) | (46,160 | ) | ||||||
Other current assets |
2,978 | (33,443 | ) | 2,683 | ||||||||
Accounts payable and accrued items |
72,774 | 84,633 | (34,620 | ) | ||||||||
Proceeds from settlement of interest rate swaps net |
17,718 | | | |||||||||
Defined benefit pension contributions |
(11,428 | ) | (16,779 | ) | (4,436 | ) | ||||||
Accrued and prepaid taxes |
(2,959 | ) | (78,393 | ) | 56,227 | |||||||
Other net |
(47,781 | ) | 29,958 | 37,917 | ||||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by Operating Activities |
730,929 | 391,562 | 713,478 | |||||||||
|
|
|
|
|
|
|||||||
Investing Activities |
||||||||||||
Businesses acquired, net of cash acquired |
(737,255 | ) | | | ||||||||
Additions to property, plant, and equipment |
(274,244 | ) | (180,080 | ) | (136,983 | ) | ||||||
Equity investment in affiliate |
(35,874 | ) | | | ||||||||
Proceeds from divestitures |
9,268 | | 19,554 | |||||||||
Purchases of marketable securities |
| (75,637 | ) | | ||||||||
Sales and maturities of marketable securities |
18,600 | 57,100 | 13,519 | |||||||||
Proceeds from disposal of property, plant, and equipment |
4,039 | 5,830 | 205 | |||||||||
Other net |
(20,398 | ) | (126 | ) | (738 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Cash Used for Investing Activities |
(1,035,864 | ) | (192,913 | ) | (104,443 | ) | ||||||
|
|
|
|
|
|
|||||||
Financing Activities |
||||||||||||
Repayment of bank note payable |
| | (350,000 | ) | ||||||||
Repayments of long-term debt |
| (10,000 | ) | (275,000 | ) | |||||||
Proceeds from long-term debt |
748,560 | 400,000 | | |||||||||
Quarterly dividends paid |
(213,667 | ) | (194,024 | ) | (166,224 | ) | ||||||
Purchase of treasury shares |
(315,780 | ) | (389,135 | ) | (5,569 | ) | ||||||
Proceeds from stock option exercises |
2,826 | 14,525 | 6,413 | |||||||||
Other net |
(2,313 | ) | 8,215 | 1,832 | ||||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by (Used for) Financing Activities |
219,626 | (170,419 | ) | (788,548 | ) | |||||||
Effect of exchange rate changes on cash |
(4,828 | ) | 8,045 | 6,390 | ||||||||
|
|
|
|
|
|
|||||||
Net (decrease) increase in cash and cash equivalents |
(90,137 | ) | 36,275 | (173,123 | ) | |||||||
Cash and cash equivalents at beginning of year |
319,845 | 283,570 | 456,693 | |||||||||
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents at End of Year |
$ | 229,708 | $ | 319,845 | $ | 283,570 | ||||||
|
|
|
|
|
|
( ) | Denotes use of cash |
See notes to consolidated financial statements.
44 The J. M. Smucker Company 2012 Annual Report |
STATEMENTS OF CONSOLIDATED SHAREHOLDERS EQUITY
The J. M. Smucker Company
(Dollars in thousands, except per share data) |
Common Shares Outstanding |
Common Shares |
Additional Capital |
Retained Income |
Amount Due from ESOP Trust |
Accumulated Other Comprehensive (Loss) Income |
Total Shareholders Equity |
|||||||||||||||||||||
Balance at May 1, 2009 |
118,422,123 | $ | 29,606 | $ | 4,547,921 | $ | 424,504 | $ | (4,830 | ) | $ | (57,270 | ) | $ | 4,939,931 | |||||||||||||
Net income |
494,138 | 494,138 | ||||||||||||||||||||||||||
Foreign currency translation adjustment |
45,926 | 45,926 | ||||||||||||||||||||||||||
Pensions and other postretirement liabilities |
(12,313 | ) | (12,313 | ) | ||||||||||||||||||||||||
Unrealized gain on available-for-sale securities |
2,652 | 2,652 | ||||||||||||||||||||||||||
Unrealized gain on cash flow hedging derivatives |
424 | 424 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income |
530,827 | |||||||||||||||||||||||||||
Purchase of treasury shares |
(122,483 | ) | (31 | ) | (5,383 | ) | (155 | ) | (5,569 | ) | ||||||||||||||||||
Stock plans |
819,512 | 205 | 29,584 | 29,789 | ||||||||||||||||||||||||
Cash dividends declared $1.45 per share |
(172,424 | ) | (172,424 | ) | ||||||||||||||||||||||||
Tax benefit of stock plans |
3,005 | 3,005 | ||||||||||||||||||||||||||
Other |
761 | 761 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at April 30, 2010 |
119,119,152 | 29,780 | 4,575,127 | 746,063 | (4,069 | ) | (20,581 | ) | 5,326,320 | |||||||||||||||||||
Net income |
479,482 | 479,482 | ||||||||||||||||||||||||||
Foreign currency translation adjustment |
24,773 | 24,773 | ||||||||||||||||||||||||||
Pensions and other postretirement liabilities |
(5,928 | ) | (5,928 | ) | ||||||||||||||||||||||||
Unrealized gain on available-for-sale securities |
1,359 | 1,359 | ||||||||||||||||||||||||||
Unrealized gain on cash flow hedging derivatives |
4,006 | 4,006 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income |
503,692 | |||||||||||||||||||||||||||
Purchase of treasury shares |
(5,832,423 | ) | (1,458 | ) | (225,677 | ) | (162,000 | ) | (389,135 | ) | ||||||||||||||||||
Stock plans |
885,393 | 221 | 39,832 | 40,053 | ||||||||||||||||||||||||
Cash dividends declared $1.68 per share |
(196,612 | ) | (196,612 | ) | ||||||||||||||||||||||||
Tax benefit of stock plans |
7,310 | 7,310 | ||||||||||||||||||||||||||
Other |
735 | 735 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at April 30, 2011 |
114,172,122 | 28,543 | 4,396,592 | 866,933 | (3,334 | ) | 3,629 | 5,292,363 | ||||||||||||||||||||
Net income |
459,744 | 459,744 | ||||||||||||||||||||||||||
Foreign currency translation adjustment |
(14,785 | ) | (14,785 | ) | ||||||||||||||||||||||||
Pensions and other postretirement liabilities |
(48,329 | ) | (48,329 | ) | ||||||||||||||||||||||||
Unrealized gain on available-for-sale securities |
742 | 742 | ||||||||||||||||||||||||||
Unrealized loss on cash flow hedging derivatives |
(25,248 | ) | (25,248 | ) | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income |
372,124 | |||||||||||||||||||||||||||
Purchase of treasury shares |
(4,236,430 | ) | (1,059 | ) | (165,619 | ) | (149,102 | ) | (315,780 | ) | ||||||||||||||||||
Stock plans |
349,023 | 87 | 25,373 | 25,460 | ||||||||||||||||||||||||
Cash dividends declared $1.92 per share |
(216,368 | ) | (216,368 | ) | ||||||||||||||||||||||||
Tax benefit of stock plans |
4,825 | 4,825 | ||||||||||||||||||||||||||
Other |
762 | 762 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at April 30, 2012 |
110,284,715 | $ | 27,571 | $ | 4,261,171 | $ | 961,207 | $ | (2,572 | ) | $ | (83,991 | ) | $ | 5,163,386 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
The J. M. Smucker Company 2012 Annual Report 45 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
(Dollars in thousands, unless otherwise noted, except per share data)
NOTE 1 | ACCOUNTING POLICIES |
Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its majority-owned investments, if any. Intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements include: allowances for doubtful trade receivables, estimates of future cash flows associated with assets, asset impairments, useful lives and residual values for depreciation and amortization, loss contingencies, net realizable value of inventories, accruals for trade marketing and merchandising programs, income taxes, and the determination of discount and other rate assumptions for defined benefit pension and other postretirement benefit expenses. Actual results could differ from these estimates.
Revenue Recognition: The Company recognizes revenue, net of estimated returns and allowances, when all of the following criteria have been met: a valid customer order with a determinable price has been received; the product has been shipped and title has transferred to the customer; there is no further significant obligation to assist in the resale of the product; and collectibility is reasonably assured.
Major Customer: Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 26 percent of net sales in both 2012 and 2011, and 27 percent of net sales in 2010. These sales are primarily included in the two U.S. retail market segments. No other customer exceeded 10 percent of net sales for any year. Trade receivables at April 30, 2012 and 2011, included amounts due from Wal-Mart Stores, Inc. and subsidiaries of $84,068 and $87,623, respectively.
Shipping and Handling Costs: Shipping and handling costs are included in cost of products sold.
Trade Marketing and Merchandising Programs: In order to support the Companys products, various promotional activities are conducted through retail trade, distributors, or directly with consumers, including in-store display and product placement programs, feature price discounts, coupons, and other similar activities. The Company regularly reviews and revises, when it deems necessary, estimates of costs to the Company for these promotional programs based on estimates of what will be redeemed by retail trade, distributors, or consumers. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expenditures and actual performance are recognized as a change in managements estimate in a subsequent period. As the Companys total promotional expenditures, including amounts classified as a reduction of net sales, represented approximately 23 percent of net sales in 2012, a possibility exists of materially different reported results if factors such as the level and success of the promotional programs or other conditions differ from expectations.
Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $119,600, $115,066, and $130,583 in 2012, 2011, and 2010, respectively.
Research and Development Costs: Total research and development costs were $21,931, $20,981, and $20,963 in 2012, 2011, and 2010, respectively.
Share-Based Payments: Share-based compensation expense is recognized over the requisite service period, which includes a one-year performance period plus the defined forfeiture period, which is typically four years of service or the attainment of a defined age and years of service.
The following table summarizes amounts related to share-based payments.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Share-based compensation expense included in selling, distribution, and administrative expenses |
$ | 19,292 | $ | 19,896 | $ | 20,687 | ||||||
Share-based compensation expense included in other merger and integration costs |
2,419 | 4,148 | 5,262 | |||||||||
Share-based compensation expense included in other restructuring costs |
105 | 290 | | |||||||||
|
|
|
|
|
|
|||||||
Total share-based compensation expense |
$ | 21,816 | $ | 24,334 | $ | 25,949 | ||||||
|
|
|
|
|
|
|||||||
Related income tax benefit |
$ | 7,511 | $ | 8,064 | $ | 8,402 | ||||||
|
|
|
|
|
|
46 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
As of April 30, 2012, total unrecognized share-based compensation cost related to nonvested share-based awards was approximately $29,881. The weighted-average period over which this amount is expected to be recognized is 2.9 years.
Corporate income tax benefits realized upon exercise or vesting of an award in excess of that previously recognized in earnings, referred to as excess tax benefits, are presented in the Statements of Consolidated Cash Flows as a financing activity. Realized excess tax benefits are credited to additional capital in the Consolidated Balance Sheets. Realized shortfall tax benefits, amounts which are less than that previously recognized in earnings, are first offset against the cumulative balance of excess tax benefits, if any, and then charged directly to income tax expense. For 2012, 2011, and 2010, the actual tax deductible benefit realized from share-based compensation was $4,825, $7,310, and $3,005, including $4,832, $6,990, and $2,908, respectively, of excess tax benefits realized upon exercise or vesting of share-based compensation, and classified as other net, under financing activities in the Statements of Consolidated Cash Flows.
Defined Contribution Plans: The Company offers employee savings plans for domestic and Canadian employees. The Companys contributions under these plans are based on a specified percentage of employee contributions. Charges to operations for these plans in 2012, 2011, and 2010 were $16,078, $16,440, and $15,625, respectively.
Income Taxes: The Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the applicable tax rate is recognized in income or expense in the period that the change is effective. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A tax benefit is recognized when it is more likely than not to be sustained.
The Company accounts for the financial statement recognition and measurement criteria of a tax position taken or expected to be taken in a tax return under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
In accordance with the requirements of FASB ASC 740, uncertain tax positions have been classified in the Consolidated Balance Sheets as long term, except to the extent payment is expected within one year. The Company recognizes net interest and penalties related to unrecognized tax benefits in income tax expense.
Cash and Cash Equivalents: The Company considers all short-term, highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Trade Receivables: In the normal course of business, the Company extends credit to customers. Trade receivables, less allowance for doubtful accounts, reflect the net realizable value of receivables and approximate fair value. The Company evaluates its trade receivables and establishes an allowance for doubtful accounts based on a combination of factors. When aware that a specific customer has been impacted by circumstances such as bankruptcy filings or deterioration in the customers operating results or financial position, potentially making it unable to meet its financial obligations, the Company records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due, historical collection experience, and an evaluation of current and projected economic conditions at the balance sheet date. Trade receivables are charged off against the allowance after management determines the potential for recovery is remote. At April 30, 2012 and 2011, the allowance for doubtful accounts was $1,715 and $1,882, respectively. The net provision for the allowance for doubtful accounts decreased $167 and $480 in 2012 and 2010, respectively, and increased $361 in 2011. The Company believes there is no concentration of risk with any single customer whose failure or nonperformance would materially affect the Companys results other than as discussed in Major Customer.
Inventories: Inventories are stated at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out method applied on a consistent basis.
The cost of finished products and work-in-process inventory includes materials, direct labor, and overhead. Work-in-process is included in finished products in the Consolidated Balance Sheets and was $78,344 and $77,594 at April 30, 2012 and 2011, respectively.
The J. M. Smucker Company 2012 Annual Report 47 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Derivative Financial Instruments: The Company utilizes derivative instruments such as basis contracts, commodity futures and options contracts, foreign currency forwards and options, and interest rate swaps to manage exposures in commodity prices, foreign currency exchange rates, and interest rates. The Company accounts for these derivative instruments in accordance with FASB ASC 815, Derivatives and Hedging, which requires all derivative instruments to be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. For derivatives designated as a cash flow hedge that are used to hedge an anticipated transaction, changes in fair value are deferred and recognized in shareholders equity as a component of accumulated other comprehensive (loss) income to the extent the hedge is effective and then recognized in the Statements of Consolidated Income in the period during which the hedged transaction affects earnings. Hedge effectiveness is measured at inception and on a monthly basis. Any ineffectiveness associated with the hedge or changes in fair value of derivatives that are nonqualifying are recognized immediately in the Statements of Consolidated Income. Derivatives designated as fair value hedges that are used to hedge against changes in the fair value of the underlying long-term debt are recognized at fair value on the Consolidated Balance Sheets. Changes in the fair value of the derivative are recognized in the Statements of Consolidated Income and are offset by the change in the fair value of the underlying long-term debt. By policy, the Company historically has not entered into derivative financial instruments for trading purposes or for speculation. For additional information, see Note 12: Derivative Financial Instruments.
Property, Plant, and Equipment: Property, plant, and equipment is recognized at cost and is depreciated on a straight-line basis over the estimated useful life of the asset (3 to 20 years for machinery and equipment, 3 to 7 years for capitalized software costs, and 5 to 40 years for buildings, fixtures, and improvements).
In 2012, the Company acquired a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corporation (Sara Lee foodservice business), which included $36,168 of coffee brew equipment. Brew equipment is recorded at cost and depreciated on a straight-line basis over an estimated useful life of 3 to 5 years. Brew equipment is included in machinery and equipment in the Consolidated Balance Sheet and was $37,100 at April 30, 2012. For additional information, see Note 2: Acquisitions.
The Company leases certain land, buildings, and equipment for varying periods of time, with renewal options. Rent expense in 2012, 2011, and 2010 totaled $56,502, $57,572, and $55,010, respectively. As of April 30, 2012, the Companys minimum operating lease obligations were as follows: $22,445 in 2013, $20,577 in 2014, $13,889 in 2015, $11,929 in 2016, and $9,561 in 2017.
Impairment of Long-Lived Assets: In accordance with FASB ASC 360, Property, Plant, and Equipment, long-lived assets, except goodwill and indefinite-lived intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of by sale are recognized as held for sale at the lower of carrying value or estimated net realizable value.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase price paid over the estimated fair value of the net assets of the business acquired. In accordance with FASB ASC 350, Intangibles Goodwill and Other, goodwill and other indefinite-lived intangible assets are not amortized but are reviewed at least annually for impairment. The Company conducts its annual test for impairment of goodwill and other indefinite-lived intangible assets as of February 1 of each year. A discounted cash flow valuation technique and a market-based approach are utilized to estimate the fair value of the Companys reporting units. For annual impairment testing purposes, the Companys reporting units are its operating segments. The discount rates utilized in the analysis are developed using a weighted-average cost of capital methodology. In addition to the annual test, the Company will test for impairment if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. For additional information, see Note 7: Goodwill and Other Intangible Assets.
Marketable Securities and Other Investments: Under the Companys investment policy, it may invest in debt securities deemed to be investment grade at the time of purchase for general corporate purposes. The Company determines the appropriate categorization of debt securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company categorized all debt securities as available for sale as it had the intent to convert these investments into cash if and when needed. Classification of available-for-sale marketable securities as current or noncurrent is based on whether the conversion to cash is expected to be necessary for operations in the upcoming year, which is consistent with the securitys maturity date.
48 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Securities categorized as available for sale are stated at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive (loss) income. The fair value of available-for-sale marketable securities was $18,600 at April 30, 2011, and was included in other current assets. All available-for-sale securities had matured or were sold prior to April 30, 2012. Proceeds of $18,600, $57,100, and $13,519 have been realized upon maturity or sale of available-for-sale marketable securities in 2012, 2011, and 2010, respectively. The Company uses specific identification to determine the basis on which securities are sold.
The Company also maintains funds for the payment of benefits associated with nonqualified retirement plans. These funds include investments considered to be available-for-sale marketable securities. At April 30, 2012 and 2011, the fair value of these investments was $43,217 and $41,560, respectively, and was included in other noncurrent assets. Included in accumulated other comprehensive (loss) income at April 30, 2012 and 2011, were unrealized gains of $3,984 and $2,817, respectively.
Foreign Currency Translation: Assets and liabilities of the Companys 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 component of shareholders equity in accumulated other comprehensive (loss) income.
Recently Issued Accounting Standards: In June 2011, the FASB issued Accounting Standard Update (ASU) 2011-05, Presentation of Comprehensive Income, which eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity and requires the presentation of net income and other comprehensive income to be in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the components that are recognized in net income or other comprehensive income. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, which defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income while the FASB further deliberates this aspect of the standard. ASU 2011-05, as amended by ASU 2011-12, will be effective May 1, 2012, for the Company. Adoption of this guidance requires retrospective application and will affect the presentation of certain elements of the Companys financial statements, but will not otherwise have an impact on the financial statements.
In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which simplifies the testing of goodwill for impairment. ASU 2011-08 will allow the Company the option to perform either a qualitative test or the first step of the two-step quantitative goodwill impairment test to assess the likelihood that the estimated fair value of a reporting unit is less than the carrying amount. This ASU will also be effective May 1, 2012, for the Company. The Company anticipates that adoption of ASU 2011-08 could change the annual process for goodwill impairment testing, but will not impact the financial statements or disclosures.
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires the disclosure of both gross and net information about instruments and transactions eligible for offset in the consolidated balance sheet. This ASU will be effective May 1, 2013, for the Company and will require retrospective application. The Company anticipates the adoption of ASU 2011-11 will not impact the financial statements, but will expand the disclosures related to derivative instruments.
Risks and Uncertainties: The raw materials used by the Company in each of its segments are primarily commodities and agricultural-based products. Glass, plastic, steel cans, caps, carton board, and corrugate are the principal packaging materials used by the Company. The fruit and vegetable raw materials used by the Company in the production of its food products are purchased from independent growers and suppliers. Green coffee, peanuts, edible oils, sweeteners, milk, flour, corn, and other ingredients are obtained from various suppliers. The availability, quality, and cost of many of these commodities have fluctuated, and may continue to fluctuate, over time. Green coffee is sourced solely from foreign countries and its supply and price are subject to high volatility due to factors such as weather, global supply and demand, pest damage, and political and economic conditions in the source countries. Raw materials are generally available from numerous sources, although the Company has elected to source certain plastic packaging materials from single sources of supply pursuant to long-term contracts. While availability may vary year to year, the Company believes that it will continue to be able to obtain adequate supplies and that alternatives to single-sourced materials are available. The Company has not historically encountered significant shortages of key raw materials. The Company considers its relationships with key material suppliers to be good.
Approximately 28 percent of the Companys employees are covered by union contracts at 11 locations. The contracts vary in term depending on the location, with three contracts expiring in 2013.
The J. M. Smucker Company 2012 Annual Report 49 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The Company insures its business and assets in each country against insurable risks, to the extent that it deems appropriate, based upon an analysis of the relative risks and costs.
Reclassifications: Certain prior year amounts have been reclassified to conform to current year classifications.
NOTE 2 | ACQUISITIONS |
On January 3, 2012, the Company completed the acquisition of a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corporation, including a state-of-the-art liquid coffee manufacturing facility in Suffolk, Virginia, for $420.6 million in an all-cash transaction. Utilizing proceeds from the 3.50 percent Notes issued in October 2011, the Company paid $375.6 million, net of a working capital adjustment, and will pay Sara Lee Corporation an additional $50.0 million in declining installments over the next 10 years. The additional $50.0 million obligation was included in other current liabilities and other noncurrent liabilities in the Consolidated Balance Sheet and recorded at a present value of $45.0 million as of the date of acquisition. In addition, the Company has incurred one-time costs of $14.2 million through April 30, 2012, directly related to the merger and integration of the acquired Sara Lee foodservice business, and the charges were reported in other merger and integration costs in the Statement of Consolidated Income. Total one-time costs related to the acquisition are estimated to be approximately $25.0 million, consisting primarily of transition services provided by Sara Lee Corporation and employee separation and relocation costs, nearly all of which are cash related. The Company expects the remaining costs to be incurred over the next two fiscal years.
The acquisition included the market-leading liquid coffee concentrate business sold under the licensed Douwe Egberts brand, along with a variety of roast and ground coffee, cappuccino, tea, and cocoa products, sold through foodservice channels in North America. Liquid coffee concentrate adds a unique, high-quality, and technology-driven form of coffee to the Companys existing foodservice product offering.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company determined the estimated fair values based on independent appraisals, discounted cash flow analyses, and estimates made by management. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, and, as such, the excess was allocated to goodwill. The amount allocated to goodwill was primarily attributable to anticipated synergies and market expansion. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
Assets acquired: |
||||
Cash and cash equivalents |
$ | 1,221 | ||
Other current assets |
42,619 | |||
Property, plant, and equipment |
92,775 | |||
Intangible assets |
138,900 | |||
Goodwill |
149,948 | |||
Other noncurrent assets |
863 | |||
|
|
|||
Total assets acquired |
$ | 426,326 | ||
|
|
|||
Liabilities assumed: |
||||
Current liabilities |
$ | 3,599 | ||
Noncurrent liabilities |
2,097 | |||
|
|
|||
Total liabilities assumed |
$ | 5,696 | ||
|
|
|||
Net assets acquired |
$ | 420,630 | ||
|
|
Goodwill of $149.9 million was assigned to the International, Foodservice, and Natural Foods segment. Of the total goodwill, $143.3 million is deductible for income tax purposes.
The purchase price allocated to the identifiable intangible assets acquired is as follows:
Intangible assets with finite lives: |
||||
Customer relationships (10-year useful life) |
$ | 92,000 | ||
Technology (10-year useful life) |
23,800 | |||
Trademarks (6-year weighted-average useful life) |
23,100 | |||
|
|
|||
Total intangible assets |
$ | 138,900 | ||
|
|
50 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The results of operations of the Sara Lee foodservice business are reported in the Companys consolidated financial statements from the date of acquisition and include $124.2 million of total net sales, included in the International, Foodservice, and Natural Foods segment financial results, and did not have a material impact on segment profit for the year ended April 30, 2012.
On May 16, 2011, the Company completed the acquisition of the coffee brands and business operations of Rowland Coffee Roasters, Inc. (Rowland Coffee), a privately-held company headquartered in Miami, Florida, for $362.8 million. The acquisition included a manufacturing, distribution, and office facility in Miami. The Company utilized cash on hand and borrowed $180.0 million under its revolving credit facility to fund the transaction. In addition, the Company has incurred one-time costs of $10.7 million through April 30, 2012, directly related to the merger and integration of Rowland Coffee, which includes approximately $4.6 million in noncash expense items that were reported in cost of products sold. The remaining charges were reported in other merger and integration costs in the Statement of Consolidated Income. Total one-time costs related to the acquisition are estimated to be approximately $25.0 million, including approximately $10.0 million of noncash charges, primarily accelerated depreciation, associated with consolidating coffee production currently in Miami into the Companys existing facilities in New Orleans, Louisiana. The Company expects the remaining costs to be incurred over the next two fiscal years.
The acquisition of Rowland Coffee, a leading producer of espresso coffee in the U.S., strengthens and broadens the Companys leadership in the U.S. retail coffee category by adding the leading Hispanic brands, Café Bustelo and Café Pilon, to the Companys portfolio of brands.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company determined the estimated fair values based on independent appraisals, discounted cash flow analyses, and estimates made by management. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, and, as such, the excess was allocated to goodwill. The amount allocated to goodwill was primarily attributable to anticipated synergies and market expansion. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
Assets acquired: |
||||
Current assets |
$ | 33,971 | ||
Property, plant, and equipment |
29,227 | |||
Intangible assets |
213,500 | |||
Goodwill |
91,675 | |||
|
|
|||
Total assets acquired |
$ | 368,373 | ||
|
|
|||
Liabilities assumed: |
||||
Current liabilities |
$ | 5,527 | ||
|
|
|||
Total liabilities assumed |
$ | 5,527 | ||
|
|
|||
Net assets acquired |
$ | 362,846 | ||
|
|
Goodwill of $84.8 million and $6.9 million was assigned to the U.S. Retail Coffee and the International, Foodservice, and Natural Foods segments, respectively. Of the total goodwill, $88.7 million is deductible for income tax purposes.
The purchase price allocated to the identifiable intangible assets acquired is as follows:
Intangible assets with finite lives: |
||||
Customer relationships (19-year weighted-average useful life) |
$ | 147,800 | ||
Trademark (10-year useful life) |
1,600 | |||
Intangible assets with indefinite lives: |
||||
Trademarks |
64,100 | |||
|
|
|||
Total intangible assets |
$ | 213,500 | ||
|
|
The results of operations of the Rowland Coffee business are included in the Companys consolidated financial statements from the date of acquisition and include $99.3 million and $16.0 million of total net sales and $13.9 million and $2.5 million of total segment profit included in the U.S. Retail Coffee and International, Foodservice, and Natural Foods segment financial results, respectively, for the year ended April 30, 2012.
The J. M. Smucker Company 2012 Annual Report 51 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
If the Sara Lee foodservice business and Rowland Coffee acquisitions had occurred on May 1, 2010, pro forma consolidated net sales would have been approximately $5.7 billion and $5.3 billion for the years ended April 30, 2012 and 2011, respectively, and the contribution of the acquired businesses would not have had a material impact to reported consolidated earnings for the years ended April 30, 2012 and 2011. The pro forma consolidated results do not give effect to the synergies of the acquisitions and are not indicative of the results of operations in future periods.
NOTE 3 | EQUITY METHOD INVESTMENT |
On March 26, 2012, the Company acquired a 25 percent equity interest in Guilin Seamild Biologic Technology Development Co., Ltd. (Seamild), a privately-owned manufacturer and marketer of oats products headquartered in Guilin in the Guangxi province of China, for $35.9 million. Seamilds products, primarily oatmeal and oat-based cereals, are sold under the leading Seamild brand with distribution in retail channels throughout China. Seamilds portfolio of quality, trusted products aligns with the Companys strategy of owning and marketing leading food brands.
The initial investment in Seamild was recorded at cost and is included in other noncurrent assets in the Consolidated Balance Sheet at April 30, 2012. The difference between the carrying amount of the investment and the underlying equity in net assets is primarily attributable to goodwill and other intangible assets. Under the equity method of accounting, the investment is adjusted for the Companys proportionate share of earnings or losses, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets. The investment did not have a material impact on the Companys consolidated financial statements for the year ended April 30, 2012.
NOTE 4 | RESTRUCTURING |
In calendar 2010, the Company announced its plan to restructure its coffee, fruit spreads, and Canadian pickle and condiments operations as part of its ongoing efforts to enhance the long-term strength and profitability of its leading brands. The initiative is a long-term investment to optimize production capacity and lower the overall cost structure. It includes capital investments for a new state-of-the-art food manufacturing facility in Orrville, Ohio; consolidation of coffee production in New Orleans, Louisiana; and the transition of the Companys pickle and condiments production to third-party manufacturers.
Upon completion, the restructuring plan will result in a reduction of approximately 850 full-time positions and the closing of six of the Companys facilities Memphis, Tennessee; Ste. Marie, Quebec; Sherman, Texas; Kansas City, Missouri; Dunnville, Ontario; and Delhi Township, Ontario. The Sherman, Dunnville, Delhi Township, and Kansas City facilities have been closed and approximately 70 percent of the full-time positions have been reduced as of April 30, 2012.
During 2012, the Company increased its estimate of the total anticipated restructuring costs from approximately $235.0 million to $245.0 million, consisting primarily of increases to employee separation and site preparation and equipment relocation charges. The Company has incurred cumulative costs of $188.8 million related to the initiative through April 30, 2012. The majority of the remaining costs are anticipated to be recognized over the next two fiscal years.
52 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table summarizes the restructuring activity, including the liabilities recorded and the total amount expected to be incurred.
Long-Lived Asset Charges |
Employee Separation |
Site Preparation and Equipment Relocation |
Production Start-up |
Other Costs | Total | |||||||||||||||||||
Total expected restructuring charge |
$ | 105,000 | $ | 71,000 | $ | 31,000 | $ | 26,000 | $ | 12,000 | $ | 245,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at May 1, 2009 |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Charge to expense |
3,870 | 1,139 | 407 | 16 | 279 | 5,711 | ||||||||||||||||||
Cash payments |
| (50 | ) | (407 | ) | (16 | ) | (279 | ) | (752 | ) | |||||||||||||
Noncash utilization |
(3,870 | ) | | | | | (3,870 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at April 30, 2010 |
$ | | $ | 1,089 | $ | | $ | | $ | | $ | 1,089 | ||||||||||||
Charge to expense |
53,569 | 36,010 | 6,192 | 5,194 | 992 | 101,957 | ||||||||||||||||||
Cash payments |
| (18,361 | ) | (6,192 | ) | (5,194 | ) | (992 | ) | (30,739 | ) | |||||||||||||
Noncash utilization |
(53,569 | ) | (8,540 | ) | | | | (62,109 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at April 30, 2011 |
$ | | $ | 10,198 | $ | | $ | | $ | | $ | 10,198 | ||||||||||||
Charge to expense |
34,195 | 20,364 | 12,963 | 10,689 | 2,930 | 81,141 | ||||||||||||||||||
Cash payments |
| (13,754 | ) | (12,963 | ) | (10,689 | ) | (2,930 | ) | (40,336 | ) | |||||||||||||
Noncash utilization |
(34,195 | ) | (8,030 | ) | | | | (42,225 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at April 30, 2012 |
$ | | $ | 8,778 | $ | | $ | | $ | | $ | 8,778 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Remaining expected restructuring charge |
$ | 13,366 | $ | 13,487 | $ | 11,438 | $ | 10,101 | $ | 7,799 | $ | 56,191 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended April 30, 2012, 2011, and 2010, total restructuring charges of $81.1 million, $102.0 million, and $5.7 million, respectively, were reported in the Statements of Consolidated Income. Of the total restructuring charges, $38.6 million, $54.1 million, and $3.9 million were reported in cost of products sold in the years ended April 30, 2012, 2011, and 2010, respectively. The remaining charges were reported in other restructuring costs. The restructuring costs classified as cost of products sold primarily include long-lived asset charges for accelerated depreciation related to property, plant, and equipment that will be used at the affected production facilities until they are closed or sold.
Employee separation costs include severance, retention bonuses, and pension costs. Severance costs and retention bonuses are being recognized over the estimated future service period of the affected employees. The obligation related to employee separation costs is included in other current liabilities in the Consolidated Balance Sheets. For additional information on the impact of the restructuring plan on defined benefit pension and other postretirement benefit plans, see Note 8: Pensions and Other Postretirement Benefits.
Other costs include professional fees, costs related to closing the facilities, and miscellaneous expenditures associated with the Companys restructuring initiative and are expensed as incurred.
NOTE 5 | REPORTABLE SEGMENTS |
The Company operates in one industry: the manufacturing and marketing of food products. The Company has three reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, and International, Foodservice, and Natural Foods. The U.S. Retail Coffee segment primarily represents the domestic sales of Folgers, Dunkin Donuts, Millstone, Café Bustelo, and Café Pilon branded coffee; the U.S. Retail Consumer Foods segment primarily includes domestic sales of Smuckers, Crisco, Jif, Pillsbury, Eagle Brand, Hungry Jack, and Martha White branded products; and the International, Foodservice, and Natural Foods segment is comprised of products distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health care operators), and health and natural foods stores and distributors.
The J. M. Smucker Company 2012 Annual Report 53 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Segment profit represents revenue, less direct and allocable operating expenses, and is consistent with the way in which the Company manages segments. However, the Company does not represent that the segments, if operated independently, would report the segment profit set forth below, as segment profit excludes certain operating expenses such as corporate administrative expenses. Segment assets represent direct and allocable assets, including certain corporate-held assets such as property, plant, and equipment, and are also set forth in the following table.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net sales: |
||||||||||||
U.S. Retail Coffee |
$ | 2,297,737 | $ | 1,930,869 | $ | 1,700,458 | ||||||
U.S. Retail Consumer Foods |
2,094,456 | 1,953,043 | 2,004,700 | |||||||||
International, Foodservice, and Natural Foods |
1,133,589 | 941,831 | 900,131 | |||||||||
|
|
|
|
|
|
|||||||
Total net sales |
$ | 5,525,782 | $ | 4,825,743 | $ | 4,605,289 | ||||||
|
|
|
|
|
|
|||||||
Segment profit: |
||||||||||||
U.S. Retail Coffee |
$ | 543,012 | $ | 536,133 | $ | 484,006 | ||||||
U.S. Retail Consumer Foods |
393,300 | 406,455 | 407,721 | |||||||||
International, Foodservice, and Natural Foods |
168,572 | 159,580 | 140,404 | |||||||||
|
|
|
|
|
|
|||||||
Total segment profit |
$ | 1,104,884 | $ | 1,102,168 | $ | 1,032,131 | ||||||
|
|
|
|
|
|
|||||||
Interest income |
1,504 | 2,512 | 2,793 | |||||||||
Interest expense |
(81,296 | ) | (69,594 | ) | (65,187 | ) | ||||||
Share-based compensation expense |
(19,292 | ) | (19,896 | ) | (20,687 | ) | ||||||
Cost of products sold restructuring |
(38,552 | ) | (54,089 | ) | (3,870 | ) | ||||||
Cost of products sold merger and integration |
(4,610 | ) | | | ||||||||
Other restructuring costs |
(42,589 | ) | (47,868 | ) | (1,841 | ) | ||||||
Other merger and integration costs |
(29,904 | ) | (11,194 | ) | (33,692 | ) | ||||||
Corporate administrative expenses |
(191,654 | ) | (184,849 | ) | (181,132 | ) | ||||||
Other income (expense) net |
2,667 | (26 | ) | 2,238 | ||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 701,158 | $ | 717,164 | $ | 730,753 | ||||||
|
|
|
|
|
|
|||||||
Assets: |
||||||||||||
U.S. Retail Coffee |
$ | 5,033,561 | $ | 4,830,127 | $ | 4,625,502 | ||||||
U.S. Retail Consumer Foods |
2,612,732 | 2,416,037 | 2,327,466 | |||||||||
International, Foodservice, and Natural Foods |
1,179,624 | 684,434 | 694,478 | |||||||||
Unallocated (A) |
289,309 | 393,987 | 327,407 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 9,115,226 | $ | 8,324,585 | $ | 7,974,853 | ||||||
|
|
|
|
|
|
|||||||
Depreciation, amortization, and impairment charges: |
||||||||||||
U.S. Retail Coffee |
$ | 102,323 | $ | 95,423 | $ | 99,490 | ||||||
U.S. Retail Consumer Foods |
46,744 | 43,280 | 44,727 | |||||||||
International, Foodservice, and Natural Foods |
37,698 | 41,680 | 28,976 | |||||||||
Unallocated (B) |
64,821 | 76,855 | 24,217 | |||||||||
|
|
|
|
|
|
|||||||
Total depreciation, amortization, and impairment charges |
$ | 251,586 | $ | 257,238 | $ | 197,410 | ||||||
|
|
|
|
|
|
|||||||
Additions to property, plant, and equipment: |
||||||||||||
U.S. Retail Coffee |
$ | 86,903 | $ | 59,910 | $ | 52,198 | ||||||
U.S. Retail Consumer Foods |
159,544 | 88,217 | 58,457 | |||||||||
International, Foodservice, and Natural Foods |
27,797 | 31,953 | 26,328 | |||||||||
|
|
|
|
|
|
|||||||
Total additions to property, plant, and equipment |
$ | 274,244 | $ | 180,080 | $ | 136,983 | ||||||
|
|
|
|
|
|
(A) | Primarily represents unallocated cash and cash equivalents and corporate-held investments. |
(B) | Primarily represents unallocated depreciation expense included in cost of products sold restructuring, cost of products sold merger and intergration, and corporate administrative expenses. |
54 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table presents certain geographical information.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net sales: |
||||||||||||
Domestic |
$ | 5,014,695 | $ | 4,358,091 | $ | 4,167,042 | ||||||
International: |
||||||||||||
Canada |
$ | 447,004 | $ | 409,710 | $ | 385,870 | ||||||
All other international |
64,083 | 57,942 | 52,377 | |||||||||
|
|
|
|
|
|
|||||||
Total international |
$ | 511,087 | $ | 467,652 | $ | 438,247 | ||||||
|
|
|
|
|
|
|||||||
Total net sales |
$ | 5,525,782 | $ | 4,825,743 | $ | 4,605,289 | ||||||
|
|
|
|
|
|
|||||||
Assets: |
||||||||||||
Domestic |
$ | 8,721,449 | $ | 7,912,311 | $ | 7,591,931 | ||||||
International: |
||||||||||||
Canada |
$ | 386,026 | $ | 406,576 | $ | 376,788 | ||||||
All other international |
7,751 | 5,698 | 6,134 | |||||||||
|
|
|
|
|
|
|||||||
Total international |
$ | 393,777 | $ | 412,274 | $ | 382,922 | ||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 9,115,226 | $ | 8,324,585 | $ | 7,974,853 | ||||||
|
|
|
|
|
|
|||||||
Long-lived assets (excluding goodwill and other intangibles): |
||||||||||||
Domestic |
$ | 1,164,802 | $ | 885,952 | $ | 854,523 | ||||||
International: |
||||||||||||
Canada |
$ | 28,072 | $ | 48,172 | $ | 61,743 | ||||||
All other international |
37,262 | 706 | 712 | |||||||||
|
|
|
|
|
|
|||||||
Total international |
$ | 65,334 | $ | 48,878 | $ | 62,455 | ||||||
|
|
|
|
|
|
|||||||
Total long-lived assets (excluding goodwill and other intangibles) |
$ | 1,230,136 | $ | 934,830 | $ | 916,978 | ||||||
|
|
|
|
|
|
The following table presents product sales information.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Coffee |
48 | % | 44 | % | 40 | % | ||||||
Peanut butter |
12 | 12 | 12 | |||||||||
Fruit spreads |
7 | 8 | 8 | |||||||||
Shortening and oils |
7 | 7 | 8 | |||||||||
Baking mixes and frostings |
6 | 6 | 6 | |||||||||
Canned milk |
5 | 5 | 5 | |||||||||
Flour and baking ingredients |
5 | 5 | 5 | |||||||||
Portion control |
2 | 3 | 3 | |||||||||
Juices and beverages |
2 | 3 | 3 | |||||||||
Handheld frozen sandwiches |
2 | 2 | 3 | |||||||||
Toppings and syrups |
2 | 2 | 2 | |||||||||
Other |
2 | 3 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Total product sales |
100 | % | 100 | % | 100 | % | ||||||
|
|
|
|
|
|
The J. M. Smucker Company 2012 Annual Report 55 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 6 | EARNINGS PER SHARE |
The following table sets forth the computation of net income per common share and net income per common share assuming dilution under the two-class method.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Computation of net income per common share: |
||||||||||||
Net income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | ||||||
Net income allocated to participating securities |
4,267 | 4,692 | 4,321 | |||||||||
|
|
|
|
|
|
|||||||
Net income allocated to common stockholders |
$ | 455,477 | $ | 474,790 | $ | 489,817 | ||||||
|
|
|
|
|
|
|||||||
Weighted-average common shares outstanding |
112,212,677 | 117,009,362 | 117,911,160 | |||||||||
|
|
|
|
|
|
|||||||
Net income per common share |
$ | 4.06 | $ | 4.06 | $ | 4.15 | ||||||
|
|
|
|
|
|
|||||||
Computation of net income per common share assuming dilution: |
||||||||||||
Net income |
$ | 459,744 | $ | 479,482 | $ | 494,138 | ||||||
Net income allocated to participating securities |
4,266 | 4,690 | 4,318 | |||||||||
|
|
|
|
|
|
|||||||
Net income allocated to common stockholders |
$ | 455,478 | $ | 474,792 | $ | 489,820 | ||||||
|
|
|
|
|
|
|||||||
Weighted-average common shares outstanding |
112,212,677 | 117,009,362 | 117,911,160 | |||||||||
Dilutive effect of stock options |
49,616 | 110,335 | 130,011 | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average common shares outstanding assuming dilution |
112,262,293 | 117,119,697 | 118,041,171 | |||||||||
|
|
|
|
|
|
|||||||
Net income per common share assuming dilution |
$ | 4.06 | $ | 4.05 | $ | 4.15 | ||||||
|
|
|
|
|
|
The following table reconciles the weighted-average common shares used in the basic and diluted earnings per share disclosures to the total weighted-average shares outstanding.
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Weighted-average common shares outstanding |
112,212,677 | 117,009,362 | 117,911,160 | |||||||||
Weighted-average participating shares outstanding |
1,051,274 | 1,156,389 | 1,040,274 | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average shares outstanding |
113,263,951 | 118,165,751 | 118,951,434 | |||||||||
Dilutive effect of stock options |
49,616 | 110,335 | 130,011 | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average shares outstanding assuming dilution |
113,313,567 | 118,276,086 | 119,081,445 | |||||||||
|
|
|
|
|
|
56 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 7 | GOODWILL AND OTHER INTANGIBLE ASSETS |
A summary of changes in the Companys goodwill during the years ended April 30, 2012 and 2011, by reportable segment is as follows:
U.S. Retail Coffee |
U.S. Retail Consumer Foods |
International, Foodservice, and Natural Foods |
Total | |||||||||||||
Balance at May 1, 2010 |
$ | 1,635,413 | $ | 1,034,395 | $ | 137,922 | $ | 2,807,730 | ||||||||
Other |
(47 | ) | 1,772 | 3,291 | 5,016 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at April 30, 2011 |
$ | 1,635,366 | $ | 1,036,167 | $ | 141,213 | $ | 2,812,746 | ||||||||
Acquisitions |
84,845 | | 156,778 | 241,623 | ||||||||||||
Other |
86 | (925 | ) | 1,088 | 249 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at April 30, 2012 |
$ | 1,720,297 | $ | 1,035,242 | $ | 299,079 | $ | 3,054,618 | ||||||||
|
|
|
|
|
|
|
|
Included in the other category at April 30, 2012 and 2011, were foreign currency exchange and other adjustments.
The Companys other intangible assets and related accumulated amortization and impairment charges are as follows:
April 30, 2012 | April 30, 2011 | |||||||||||||||||||||||
Acquisition Cost |
Accumulated Amortization/ Impairment Charges |
Net | Acquisition Cost |
Accumulated Amortization/ Impairment Charges |
Net | |||||||||||||||||||
Finite-lived intangible assets subject to amortization: |
||||||||||||||||||||||||
Customer and contractual relationships |
$ | 1,415,084 | $ | 238,419 | $ | 1,176,665 | $ | 1,180,000 | $ | 168,125 | $ | 1,011,875 | ||||||||||||
Patents and technology |
158,770 | 36,888 | 121,882 | 134,970 | 25,980 | 108,990 | ||||||||||||||||||
Trademarks |
62,554 | 18,854 | 43,700 | 35,153 | 6,652 | 28,501 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets subject to amortization |
$ | 1,636,408 | $ | 294,161 | $ | 1,342,247 | $ | 1,350,123 | $ | 200,757 | $ | 1,149,366 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Indefinite-lived intangible assets not subject to amortization: |
||||||||||||||||||||||||
Trademarks |
$ | 1,855,621 | $ | 10,861 | $ | 1,844,760 | $ | 1,799,862 | $ | 9,218 | $ | 1,790,644 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other intangible assets |
$ | 3,492,029 | $ | 305,022 | $ | 3,187,007 | $ | 3,149,985 | $ | 209,975 | $ | 2,940,010 | ||||||||||||
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|
|
Amortization expense for finite-lived intangible assets was $87,721, $73,438, and $72,417 in 2012, 2011, and 2010, respectively. The weighted-average useful life of the finite-lived intangible assets is 18 years. Based on the amount of intangible assets subject to amortization at April 30, 2012, the estimated amortization expense for each of the succeeding five years is approximately $96,000.
The Company reviews goodwill and other indefinite-lived intangible assets at least annually for impairment. The annual impairment review was performed as of February 1, 2012. Goodwill impairment is tested at the reporting unit level which is the Companys operating segments.
Nonrecurring fair value adjustments of $4,590, $17,599, and $11,658 were recognized related to the impariment of certain intangible assets in 2012, 2011, and 2010, respectively. The impairment recognized in 2012 was related to a finite-lived trademark. The impairment was recognized in the fourth quarter when the Company evaluated the historical performance and future growth of this regional canned milk brand. The Company utilized Level 3 inputs based on managements best estimates and assumptions to estimate the fair value of the trademark and concluded the trademark had no value. The majority of the impairment recognized in 2011 and 2010 was related to the Europes Best trademark and customer relationship. In October 2011, the Company sold the Europes Best frozen fruit and vegetable business, resulting in a loss of $11,287.
The J. M. Smucker Company 2012 Annual Report 57 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 8 | PENSIONS AND OTHER POSTRETIREMENT BENEFITS |
The Company has defined benefit pension plans covering certain domestic and Canadian employees. Benefits are based on the employees years of service and compensation. The Companys plans are funded in conformity with the funding requirements of applicable government regulations.
In addition to providing pension benefits, the Company sponsors several unfunded, defined postretirement plans that provide health care and life insurance benefits to certain retired domestic and Canadian employees. 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 reach age 55 and have attained 10 years of credited service.
Upon completion of the restructuring activity discussed in Note 4: Restructuring, approximately 850 full-time positions will be reduced. The Company has included the estimated impact of the planned reductions in measuring the U.S. and Canadian benefit obligation of the pension plans and other postretirement plans at April 30, 2012. As a result, the benefit obligation of the pension plans and other postretirement plans decreased by approximately $2,700 and increased by approximately $1,900, respectively. Included in the following tables are charges recognized for termination benefits, curtailment, and settlement as a result of the restructuring plan.
The following table summarizes the components of net periodic benefit cost and the change in accumulated other comprehensive (loss) income related to the defined benefit pension and other postretirement plans.
Defined Benefit Pension Plans | Other Postretirement Benefits | |||||||||||||||||||||||
Year Ended April 30, |
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||
Service cost |
$ | 8,050 | $ | 7,504 | $ | 5,755 | $ | 2,348 | $ | 1,620 | $ | 1,525 | ||||||||||||
Interest cost |
26,210 | 25,491 | 24,788 | 3,075 | 2,775 | 2,607 | ||||||||||||||||||
Expected return on plan assets |
(26,955 | ) | (26,848 | ) | (22,894 | ) | | | | |||||||||||||||
Amortization of prior service cost (credit) |
1,117 | 1,146 | 1,362 | (425 | ) | (489 | ) | (489 | ) | |||||||||||||||
Amortization of net actuarial loss (gain) |
9,381 | 10,294 | 6,291 | (43 | ) | (536 | ) | (1,043 | ) | |||||||||||||||
Curtailment loss (gain) |
1,124 | 4,095 | | (115 | ) | | | |||||||||||||||||
Settlement loss |
1,066 | | | | | | ||||||||||||||||||
Termination benefit cost |
1,838 | 8,395 | | 2,030 | 2,413 | | ||||||||||||||||||
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Net periodic benefit cost |
$ | 21,831 | $ | 30,077 | $ | 15,302 | $ | 6,870 | $ | 5,783 | $ | 2,600 | ||||||||||||
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|||||||||||||
Other changes in plan assets and benefit liabilities recognized in accumulated other comprehensive (loss) income before income taxes: |
||||||||||||||||||||||||
Prior service cost arising during the year |
$ | | $ | (359 | ) | $ | (1,334 | ) | $ | | $ | (925 | ) | $ | | |||||||||
Net actuarial loss arising during the year |
(82,125 | ) | (13,533 | ) | (13,713 | ) | (4,163 | ) | (7,769 | ) | (3,248 | ) | ||||||||||||
Amortization of prior service cost (credit) |
1,117 | 1,146 | 1,362 | (425 | ) | (489 | ) | (489 | ) | |||||||||||||||
Amortization of net actuarial loss (gain) |
9,381 | 10,294 | 6,291 | (43 | ) | (536 | ) | (1,043 | ) | |||||||||||||||
Curtailment loss (gain) |
1,124 | 4,095 | | (115 | ) | | | |||||||||||||||||
Settlement loss |
1,066 | | | | | | ||||||||||||||||||
Foreign currency translation |
1,092 | (2,032 | ) | (5,932 | ) | (69 | ) | 104 | 173 | |||||||||||||||
Other adjustments |
23 | | (71 | ) | | | | |||||||||||||||||
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|||||||||||||
Net change for year |
$ | (68,322 | ) | $ | (389 | ) | $ | (13,397 | ) | $ | (4,815 | ) | $ | (9,615 | ) | $ | (4,607 | ) | ||||||
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Weighted-average assumptions used in determining net periodic benefit costs: |
||||||||||||||||||||||||
U.S. plans: |
||||||||||||||||||||||||
Discount rate |
5.50 | % | 5.80 | % | 7.40 | % | 5.50 | % | 5.80 | % | 7.40 | % | ||||||||||||
Expected return on plan assets |
7.00 | 7.50 | 7.75 | | | | ||||||||||||||||||
Rate of compensation increase |
4.14 | 4.15 | 3.79 | | | | ||||||||||||||||||
Canadian plans: |
||||||||||||||||||||||||
Discount rate |
5.00 | % | 5.30 | % | 5.40 | % | 5.00 | % | 5.30 | % | 5.40 | % | ||||||||||||
Expected return on plan assets |
6.66 | 7.08 | 7.33 | | | | ||||||||||||||||||
Rate of compensation increase |
4.00 | 4.00 | 4.00 | | | | ||||||||||||||||||
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The Company uses a measurement date of April 30 to determine defined benefit pension plans and other postretirement benefits assets and benefit obligations.
58 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheets.
Defined Benefit Pension Plans | Other Postretirement Benefits | |||||||||||||||
April 30, |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Change in benefit obligation: |
||||||||||||||||
Benefit obligation at beginning of year |
$ | 503,346 | $ | 450,728 | $ | 59,789 | $ | 45,592 | ||||||||
Service cost |
8,050 | 7,504 | 2,348 | 1,620 | ||||||||||||
Interest cost |
26,210 | 25,491 | 3,075 | 2,775 | ||||||||||||
Amendments |
| 359 | | 925 | ||||||||||||
Actuarial loss |
60,019 | 30,276 | 4,278 | 7,769 | ||||||||||||
Participant contributions |
514 | 498 | 1,412 | 1,077 | ||||||||||||
Benefits paid |
(28,603 | ) | (30,502 | ) | (3,595 | ) | (3,674 | ) | ||||||||
Foreign currency translation adjustments |
(5,052 | ) | 8,446 | (526 | ) | 1,270 | ||||||||||
Curtailment |
398 | 2,151 | (115 | ) | | |||||||||||
Settlement |
(4,974 | ) | | | | |||||||||||
Termination benefit cost |
1,838 | 8,395 | 2,030 | 2,413 | ||||||||||||
Other adjustments |
| | 133 | 22 | ||||||||||||
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|||||||||
Benefit obligation at end of year |
$ | 561,746 | $ | 503,346 | $ | 68,829 | $ | 59,789 | ||||||||
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|||||||||
Change in plan assets: |
||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 407,600 | $ | 367,322 | $ | | $ | | ||||||||
Actual return on plan assets |
5,246 | 45,743 | | | ||||||||||||
Company contributions |
11,428 | 16,779 | 2,165 | 2,576 | ||||||||||||
Participant contributions |
514 | 498 | 1,412 | 1,077 | ||||||||||||
Benefits paid |
(28,603 | ) | (30,502 | ) | (3,595 | ) | (3,674 | ) | ||||||||
Foreign currency translation adjustments |
(4,744 | ) | 7,760 | | | |||||||||||
Settlement |
(4,974 | ) | | | | |||||||||||
Other adjustments |
| | 18 | 21 | ||||||||||||
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Fair value of plan assets at end of year |
$ | 386,467 | $ | 407,600 | $ | | $ | | ||||||||
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Funded status of the plans |
$ | (175,279 | ) | $ | (95,746 | ) | $ | (68,829 | ) | $ | (59,789 | ) | ||||
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Other noncurrent assets |
$ | | $ | 2,976 | $ | | $ | | ||||||||
Defined benefit pensions |
(147,551 | ) | (98,722 | ) | | | ||||||||||
Accrued compensation |
(27,728 | ) | | | | |||||||||||
Postretirement benefits other than pensions |
| | (68,829 | ) | (59,789 | ) | ||||||||||
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Net benefit liability |
$ | (175,279 | ) | $ | (95,746 | ) | $ | (68,829 | ) | $ | (59,789 | ) | ||||
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The Company will offer terminated pension participants a lump-sum cash settlement in order to reduce the Companys future pension obligation and administrative costs. Approximately $20,000 of the $27,728 in accrued compensation relates to the anticipated lump-sum payments.
The following table summarizes amounts recognized in accumulated other comprehensive (loss) income in the Consolidated Balance Sheets, before income taxes.
Defined Benefit Pension Plans | Other Postretirement Benefits | |||||||||||||||
April 30, |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net actuarial (loss) gain |
$ | (204,471 | ) | $ | (134,306 | ) | $ | 2,293 | $ | 6,683 | ||||||
Prior service (cost) credit |
(2,966 | ) | (4,809 | ) | 1,704 | 2,129 | ||||||||||
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Total recognized in accumulated other comprehensive (loss) income |
$ | (207,437 | ) | $ | (139,115 | ) | $ | 3,997 | $ | 8,812 | ||||||
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During 2013, the Company expects to recognize amortization of net actuarial losses and prior service cost of $13,298 and $588, respectively, in net periodic benefit cost.
The J. M. Smucker Company 2012 Annual Report 59 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table sets forth the assumptions used in determining the benefit obligations.
Defined Benefit Pension Plans | Other Postretirement Benefits |
|||||||||||||||
April 30, |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Weighted-average assumptions used in determining benefit obligation: |
||||||||||||||||
U.S. plans: |
||||||||||||||||
Discount rate |
4.70 | % | 5.50 | % | 4.70 | % | 5.50 | % | ||||||||
Rate of compensation increase |
4.14 | 4.14 | | | ||||||||||||
Canadian plans: |
||||||||||||||||
Discount rate |
4.20 | % | 5.00 | % | 4.20 | % | 5.00 | % | ||||||||
Rate of compensation increase |
4.00 | 4.00 | | |
For 2013, the assumed health care trend rates are 8.0 percent and 6.5 percent for the U.S. and Canadian plans, respectively. The rate for participants under age 65 is assumed to decrease to 5.0 percent in 2019 and 4.5 percent in 2017 for the U.S. and Canadian plans, respectively. The health care cost trend rate assumption has a significant effect on the amount of the other postretirement benefits obligation and periodic other postretirement benefits cost reported.
A one-percentage point annual change in the assumed health care cost trend rate would have the following effect as of April 30, 2012:
One-Percentage Point | ||||||||
Increase | Decrease | |||||||
Effect on total service and interest cost components |
$ | 209 | $ | 176 | ||||
Effect on benefit obligation |
3,274 | 2,844 |
The following table sets forth selective information pertaining to the Companys Canadian pension and other postretirement benefit plans.
Defined Benefit Pension Plans | Other Postretirement Benefits | |||||||||||||||
Year Ended April 30, |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Benefit obligation at end of year |
$ | 125,708 | $ | 123,600 | $ | 13,255 | $ | 12,898 | ||||||||
Fair value of plan assets at end of year |
104,475 | 113,814 | | | ||||||||||||
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|||||||||
Funded status of the plans |
$ | (21,233 | ) | $ | (9,786 | ) | $ | (13,255 | ) | $ | (12,898 | ) | ||||
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|
|||||||||
Components of net periodic benefit cost: |
||||||||||||||||
Service cost |
$ | 1,362 | $ | 1,470 | $ | 39 | $ | 34 | ||||||||
Interest cost |
5,616 | 5,713 | 570 | 596 | ||||||||||||
Expected return on plan assets |
(7,018 | ) | (6,912 | ) | | | ||||||||||
Amortization of net actuarial loss (gain) |
2,983 | 4,836 | (4 | ) | (39 | ) | ||||||||||
Curtailment loss (gain) |
| 185 | (115 | ) | | |||||||||||
Settlement loss |
1,066 | | | | ||||||||||||
Termination benefit cost |
| 933 | | | ||||||||||||
Other |
| 6 | | (1 | ) | |||||||||||
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|
|||||||||
Net periodic benefit cost |
$ | 4,009 | $ | 6,231 | $ | 490 | $ | 590 | ||||||||
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|||||||||
Changes in plan assets: |
||||||||||||||||
Company contributions |
$ | 6,123 | $ | 4,629 | $ | 762 | $ | 771 | ||||||||
Participant contributions |
514 | 498 | | | ||||||||||||
Benefits paid |
(9,324 | ) | (8,595 | ) | (762 | ) | (771 | ) | ||||||||
Actual return on plan assets |
3,066 | 10,419 | | | ||||||||||||
Foreign currency translation |
(4,744 | ) | 7,760 | | | |||||||||||
Settlement loss |
(4,974 | ) | | | | |||||||||||
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|
60 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table sets forth additional information related to the Companys defined benefit pension plans.
April 30, | ||||||||
2012 | 2011 | |||||||
Accumulated benefit obligation for all pension plans |
$ | 523,584 | $ | 468,604 | ||||
Plans with an accumulated benefit obligation in excess of plan assets: |
||||||||
Accumulated benefit obligation |
523,584 | 436,329 | ||||||
Fair value of plan assets |
386,467 | 371,895 | ||||||
Plans with a projected benefit obligation in excess of plan assets: |
||||||||
Projected benefit obligation |
561,746 | 473,555 | ||||||
Fair value of plan assets |
386,467 | 374,741 |
The Company employs a total return on investment approach for the defined benefit pension plans assets. A mix of equity, fixed-income, and alternative investments is used to maximize the long-term rate of return on assets for the level of risk. In determining the expected long-term rate of return on the defined benefit pension plans assets, management considers the historical rates of return, the nature of investments, the asset allocation, and expectations of future investment strategies.
The following tables summarize the fair value of the major asset classes for the U.S. and Canadian defined benefit pension plans and the levels within the fair value hierarchy in which the fair value measurements fall.
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value at April 30, 2012 |
|||||||||||||
Cash and cash equivalents (A) |
$ | 13,999 | $ | | $ | | $ | 13,999 | ||||||||
Equity securities: |
||||||||||||||||
U.S. (B) |
79,582 | 16,872 | | 96,454 | ||||||||||||
International (C) |
65,361 | 13,029 | | 78,390 | ||||||||||||
Fixed-income securities: |
||||||||||||||||
Bonds (D) |
82,109 | | | 82,109 | ||||||||||||
Fixed income (E) |
76,866 | | | 76,866 | ||||||||||||
Other types of investments: |
||||||||||||||||
Hedge funds (F) |
| | 22,351 | 22,351 | ||||||||||||
Private equity funds (F) |
| | 16,298 | 16,298 | ||||||||||||
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|
|||||||||
Total financial assets measured at fair value |
$ | 317,917 | $ | 29,901 | $ | 38,649 | $ | 386,467 | ||||||||
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|
The J. M. Smucker Company 2012 Annual Report 61 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value at April 30, 2011 |
|||||||||||||
Cash and cash equivalents (A) |
$ | 6,006 | $ | | $ | | $ | 6,006 | ||||||||
Equity securities: |
||||||||||||||||
U.S. (B) |
82,457 | 18,930 | 4,777 | 106,164 | ||||||||||||
International (C) |
40,189 | 41,808 | | 81,997 | ||||||||||||
Fixed-income securities: |
||||||||||||||||
Bonds (D) |
65,126 | 17,610 | | 82,736 | ||||||||||||
Fixed income (E) |
45,515 | 34,544 | | 80,059 | ||||||||||||
Other types of investments: |
||||||||||||||||
Hedge funds (F) |
| | 37,451 | 37,451 | ||||||||||||
Private equity funds (F) |
| | 13,187 | 13,187 | ||||||||||||
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|
|||||||||
Total financial assets measured at fair value |
$ | 239,293 | $ | 112,892 | $ | 55,415 | $ | 407,600 | ||||||||
|
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|
(A) | This category includes money market holdings with maturities of three months or less and are classified as Level 1. Based on the short-term nature of these assets, carrying value approximates fair value. |
(B) | This category is invested primarily in a portfolio of common stocks included in the Russell 1000 Index and traded on active exchanges. The Level 1 assets are valued using quoted market prices for identical securities in active markets. The Level 2 assets are funds that consist of equity securities traded on active exchanges. The Level 3 assets are valued at approximate fair value. No assets were classified as Level 3 as of April 30, 2012. |
(C) | This category is invested primarily in common stocks and other equity securities traded on active exchanges whose issuers are located outside of the U.S. The fund invests primarily in developed countries, but may also invest in emerging markets. The Level 1 assets are valued using quoted market prices for identical securities in active markets. The Level 2 assets are funds that consist of equity securities traded on active exchanges. |
(D) | This category seeks to duplicate the return characteristics of high-quality corporate bonds with a duration range of 10 to 13 years. The Level 1 assets are valued using quoted market prices for identical securities in active markets. The Level 2 assets are funds that consist of bonds traded on active exchanges. No assets were classified as Level 2 as of April 30, 2012. |
(E) | This category is comprised of a core fixed-income fund that invests at least 80 percent of its assets in investment-grade U.S. corporate and government fixed-income securities, including mortgage-backed securities. The Level 1 assets are valued using quoted market prices for identical securities in active markets. The Level 2 assets are funds that consist of fixed-income securities traded on active exchanges. No assets were classified as Level 2 as of April 30, 2012. |
(F) | The hedge funds category is comprised of hedge funds of funds which invest in equity hedge, directional, relative value, and event-driven funds. The hedge funds have quarterly liquidity with 65 days notice. The private equity funds category is comprised of one fund that consists primarily of limited partnership interests in corporate finance and venture capital funds. The private equity fund cannot be redeemed and return of principal is based on the liquidation of the underlying assets. Both the hedge funds and the private equity fund are classified as Level 3 assets and are valued based on each funds net asset value (NAV). NAV is calculated based on the estimated fair value of the underlying investment funds within the portfolio and is corroborated by managements review. |
The following table presents a rollforward of activity for Level 3 assets between May 1, 2011 and April 30, 2012.
U.S. Equity Securities |
Hedge Funds |
Private Equity Funds |
Total | |||||||||||||
Balance at May 1, 2011 |
$ | 4,777 | $ | 37,451 | $ | 13,187 | $ | 55,415 | ||||||||
Purchases and sales net |
2,999 | (13,616 | ) | 1,095 | (9,522 | ) | ||||||||||
Actual return on plan assets sold during the period |
(7,776 | ) | (893 | ) | | (8,669 | ) | |||||||||
Actual return on plan assets still held at reporting date |
| (591 | ) | 2,016 | 1,425 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at April 30, 2012 |
$ | | $ | 22,351 | $ | 16,298 | $ | 38,649 | ||||||||
|
|
|
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|
|
|
|
The Companys current investment policy is to invest approximately 45 percent of assets in equity securities, 41 percent in fixed-income securities, and 14 percent in cash and other investments. Included in equity securities were 317,552 of the Companys common shares at April 30, 2012 and 2011. The market value of these shares was $25,287 at April 30, 2012. The Company paid dividends of $597 on these shares during 2012.
The Company expects to contribute approximately $32 million, including $20 million of anticipated lump-sum cash settlements, to the defined benefit pension plans in 2013. The Company expects the following payments to be made from the defined benefit pension and other postretirement benefit plans: $47 million in 2013, $34 million in 2014, $33 million in 2015, $40 million in 2016, $34 million in 2017, and $185 million in 2018 through 2022.
62 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 9 | SHARE-BASED PAYMENTS |
The Company provides for equity-based incentives to be awarded to key employees and non-employee directors. Currently, these incentives consist of restricted shares, restricted stock units, deferred shares, deferred stock units, performance units, and stock options. These awards are administered primarily through the 2010 Equity and Incentive Compensation Plan approved by the Companys shareholders in August 2010. Awards under this plan may be in the form of stock options, stock appreciation rights, restricted shares, restricted stock units (which may also be referred to as deferred stock units), performance shares, performance units, incentive awards, and other share-based awards. Awards under this plan may be granted to the Companys and its subsidiaries non-employee directors, consultants, officers, and other employees. Deferred stock units granted to non-employee directors vest immediately. At April 30, 2012, there were 7,311,613 shares available for future issuance under this plan.
Under the 2010 Equity and Incentive Compensation Plan, the Company has the option to settle share-based awards by issuing common shares from treasury, issuing new Company common shares, or issuing a combination of common shares from treasury and new Company common shares.
Stock Options: The following table is a summary of the Companys stock option activity and related information.
Options | Weighted-Average Exercise Price |
|||||||
Outstanding at May 1, 2011 |
196,925 | $ | 41.18 | |||||
Exercised |
(72,084 | ) | 39.46 | |||||
|
|
|
|
|||||
Outstanding and exercisable at April 30, 2012 |
124,841 | $ | 42.18 | |||||
|
|
|
|
At April 30, 2012, the weighted-average remaining contractual term for stock options outstanding and exercisable was 1.8 years and the aggregate intrinsic value of these stock options was approximately $4,675.
The total intrinsic value of options exercised during 2012, 2011, and 2010 was approximately $2,644, $13,355, and $5,876, respectively.
Other Equity Awards: The following table is a summary of the Companys restricted shares, deferred shares, deferred stock units, and performance units.
Restricted/Deferred Shares and Deferred Stock Units |
Weighted-Average Grant Date Fair Value |
Performance Units |
Weighted-Average Fair Value |
|||||||||||||
Outstanding at May 1, 2011 |
1,157,266 | $ | 49.39 | 125,360 | $ | 77.53 | ||||||||||
Granted |
152,180 | 78.32 | 99,455 | 76.37 | ||||||||||||
Converted |
125,360 | 77.53 | (125,360 | ) | 77.53 | |||||||||||
Vested |
(430,831 | ) | 52.60 | | | |||||||||||
Forfeited |
(12,985 | ) | 52.91 | | | |||||||||||
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|
|||||||||
Outstanding at April 30, 2012 |
990,990 | $ | 55.95 | 99,455 | $ | 76.37 | ||||||||||
|
|
|
|
|
|
|
|
The J. M. Smucker Company 2012 Annual Report 63 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The total fair value of equity awards other than stock options vesting in 2012, 2011, and 2010 was approximately $22,663, $17,680, and $16,273, respectively. The weighted-average grant date fair value of restricted shares, deferred shares, deferred stock units, and performance units is the average of the high and the low share price on the date of grant. The following table summarizes the weighted-average grant date fair values of the equity awards granted in 2012, 2011, and 2010.
Year Ended April 30, |
Restricted/ Deferred Shares and Deferred Stock Units |
Weighted- Average Grant Date Fair Value |
Performance Units |
Weighted- Average Grant Date Fair Value |
||||||||||||
2012 |
152,180 | $ | 78.32 | 99,455 | $ | 76.37 | ||||||||||
2011 |
303,863 | 58.32 | 125,360 | 77.53 | ||||||||||||
2010 |
504,580 | 44.63 | 190,010 | 57.37 |
The performance units column represents the number of restricted shares received by certain executive officers, subsequent to year end, upon conversion of the performance units earned during the year. Restricted stock generally vests four years from the date of grant or upon the attainment of a defined age and years of service.
NOTE 10 | DEBT AND FINANCING ARRANGEMENTS |
Long-term debt consists of the following:
Year Ended April 30, | ||||||||
2012 | 2011 | |||||||
4.78% Senior Notes due June 1, 2014 |
$ | 100,000 | $ | 100,000 | ||||
6.12% Senior Notes due November 1, 2015 |
24,000 | 24,000 | ||||||
6.63% Senior Notes due November 1, 2018 |
397,906 | 380,039 | ||||||
3.50% Notes due October 15, 2021 |
748,637 | | ||||||
5.55% Senior Notes due April 1, 2022 |
400,000 | 400,000 | ||||||
4.50% Senior Notes due June 1, 2025 |
400,000 | 400,000 | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 2,070,543 | $ | 1,304,039 | ||||
Current portion of long-term debt |
50,000 | | ||||||
|
|
|
|
|||||
Total long-term debt, less current portion |
$ | 2,020,543 | $ | 1,304,039 | ||||
|
|
|
|
On October 18, 2011, the Company completed a public issuance of $750.0 million in aggregate principal amount of 3.50 percent Notes due October 15, 2021. Interest is payable semiannually beginning April 15, 2012. The Company received proceeds of $748.6 million, net of an offering discount of $1.4 million. The discount is being amortized to interest expense over the life of the 3.50 percent Notes, resulting in an effective rate of 3.52 percent. The 3.50 percent Notes may be redeemed at any time prior to maturity, at the option of the Company. The 3.50 percent Notes are senior unsecured obligations and rank equally with the Companys other unsecured and unsubordinated debt and are guaranteed fully and unconditionally, on a joint and several basis, by J. M. Smucker LLC and The Folgers Coffee Company, two of the Companys 100 percent wholly-owned subsidiaries. A portion of the proceeds was used to fund the Sara Lee foodservice business acquisition and for the repayment of borrowings outstanding under the Companys revolving credit facility, resulting from funding the Rowland Coffee acquisition. The remainder was used for general corporate purposes, including share repurchases.
In anticipation of the 3.50 percent Notes public issuance, the Company entered into a forward-starting interest rate swap in August 2011 to partially hedge the risk of an increase in the benchmark interest rate during the period leading up to the public issuance. The interest rate swap was designated as a cash flow hedge with a notional amount of $500.0 million. On October 13, 2011, in conjunction with the pricing of the 3.50 percent Notes, the Company terminated the interest rate swap prior to maturity. The termination resulted in a loss of $6.2 million, which will be amortized over the life of the related debt offering. For additional information, see Note 12: Derivative Financial Instruments.
64 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
In 2011, the Company entered into an interest rate swap on the 6.63 percent Senior Notes due November 1, 2018, converting the Senior Notes from a fixed to a variable-rate basis until maturity. The interest rate swap was designated as a fair value hedge of the underlying debt obligation with a notional amount of $376.0 million. In August 2011, the Company terminated the interest rate swap prior to maturity. As a result of the early termination, the Company received $27.0 million in cash, which included $3.1 million of interest receivable, and realized a gain of $23.9 million, which was deferred and will be recognized as a reduction of future interest expense through November 1, 2018. The unamortized benefit at April 30, 2012, was $21.9 million and the fair value adjustment of the interest rate swap at April 30, 2011, was $4.0 million, and both were recorded as an increase in the long-term debt balance. For additional information, see Note 12: Derivative Financial Instruments.
All of the Companys Senior Notes are unsecured and interest is paid semiannually. Scheduled payments are required on the 5.55 percent Senior Notes, the first of which is $50.0 million on April 1, 2013, and on the 4.50 percent Senior Notes, the first of which is $100.0 million on June 1, 2020.
Interest paid totaled approximately $86.6 million, $62.1 million, and $76.5 million in 2012, 2011, and 2010, respectively. This differs from interest expense due to the timing of payments, amortization of fair value adjustments, amortization of debt issuance costs, and interest capitalized.
On July 29, 2011, the Company entered into a second amended and restated credit agreement with a group of 10 banks, which provides for an unsecured revolving credit line of $1.0 billion and matures July 29, 2016. The Companys borrowings under the credit facility bear interest based on the prevailing U.S. Prime Rate, Canadian Base Rate, London Interbank Offered Rate (LIBOR), or Canadian Dealer Offered Rate, as determined by the Company. Interest is payable either on a quarterly basis or at the end of the borrowing term. At April 30, 2012, the Company did not have a balance outstanding under the revolving credit facility. The Company had standby letters of credit of approximately $7.8 million outstanding at April 30, 2012.
The Companys debt instruments contain certain financial covenant restrictions including consolidated net worth, a leverage ratio, and an interest coverage ratio. The Company is in compliance with all covenants.
NOTE 11 | CONTINGENCIES |
The Company, like other food manufacturers, is from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. The Company is currently a defendant in a variety of such legal proceedings. The Company cannot predict with certainty the ultimate results of these proceedings or reasonably determine a range of potential loss. The Companys policy is to accrue costs for contingent liabilities when such liabilities are probable and amounts can be reasonably estimated. Based on the information known to date, the Company does not believe the final outcome of these proceedings will have a material adverse effect on the Companys financial position, results of operations, or cash flows.
NOTE 12 | DERIVATIVE FINANCIAL INSTRUMENTS |
The Company is exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, the Company enters into various derivative transactions. By policy, the Company historically has not entered into derivative financial instruments for trading purposes or for speculation.
Commodity Price Management: The Company enters into commodity futures and options contracts to manage the price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, edible oils, and flour. The Company also enters into commodity futures and options contracts to manage price risk for energy input costs, including natural gas and diesel fuel. The derivative instruments generally have maturities of less than one year.
The J. M. Smucker Company 2012 Annual Report 65 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Certain of the derivative instruments associated with the Companys U.S. Retail Coffee and U.S. Retail Consumer Foods segments meet the hedge criteria and are accounted for as cash flow hedges. The mark-to-market gains or losses on qualifying hedges are deferred and included as a component of accumulated other comprehensive (loss) income to the extent effective, and reclassified to cost of products sold in the period during which the hedged transaction affects earnings. Cash flows related to qualifying hedges are classified consistently with the cash flows from the hedged item in the Statements of Consolidated Cash Flows. In order to qualify as a hedge of commodity price risk, it must be demonstrated that the changes in the fair value of the commoditys futures contracts are highly effective in hedging price risks associated with the commodity purchased. Hedge effectiveness is measured and assessed at inception and on a monthly basis. The mark-to-market gains or losses on nonqualifying and ineffective portions of commodity hedges are recognized in cost of products sold immediately.
Foreign Currency Exchange Rate Hedging: The Company utilizes foreign currency forwards and options contracts to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials, finished goods, and fixed assets in Canada. The contracts generally have maturities of less than one year. At the inception of the contract, the derivative is evaluated and documented for hedge accounting treatment. Instruments currently used to manage foreign currency exchange exposures do not meet the requirements for hedge accounting treatment and the change in value of these instruments is immediately recognized in cost of products sold. If the contract qualifies for hedge accounting treatment, to the extent the hedge is deemed effective, the associated mark-to-market gains and losses are deferred and included as a component of accumulated other comprehensive (loss) income. These gains or losses are reclassified to earnings in the period the contract is executed. The ineffective portion of these contracts is immediately recognized in earnings.
Interest Rate Hedging: The Company utilizes interest rate swaps to mitigate the exposure to interest rate risk. At the inception of the contract, the instrument is evaluated and documented for hedge accounting treatment.
In August 2011, the Company entered into a forward-starting interest rate swap agreement to partially hedge the risk of an increase in the benchmark interest rate during the period leading up to the $750.0 million 3.50 percent Notes public offering. The interest rate swap was designated as a cash flow hedge. The mark-to-market gains or losses on the swap were deferred and included as a component of accumulated other comprehensive (loss) income to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affected earnings. In October 2011, in conjunction with the pricing of the 3.50 percent Notes, the Company terminated the interest rate swap prior to maturity, resulting in a loss of $6.2 million. The resulting loss will be recognized in interest expense ratably over the life of the related debt. The ineffective portion of the hedge was reclassified to interest expense upon termination of the swap. For additional information, see Note 10: Debt and Financing Arrangements.
The Companys interest rate swap on the 6.63 percent Senior Notes due November 1, 2018, met the criteria to be designated as a fair value hedge. The Company received a fixed rate and paid variable rates, hedging the underlying debt and the associated changes in the fair value of the debt. The interest rate swap was recognized at fair value in the Consolidated Balance Sheet at April 30, 2011, and changes in the fair value were recognized in interest expense. Gains and losses recognized in interest expense on the instrument had no net impact to earnings, as the change in the fair value of the derivative was equal to the change in fair value of the underlying debt. In August 2011, the Company terminated the interest rate swap on the 6.63 percent Senior Notes prior to maturity, resulting in a gain of $23.9 million which was deferred and will be recognized over the remaining life of the underlying debt as a reduction of future interest expense. In 2012, the Company recognized $2.0 million of the gain with the remaining to be recognized as follows: $2.9 million in 2013, $3.0 million in 2014, $3.2 million in 2015, $3.4 million in 2016, and the remaining $9.4 million in 2017 through 2019. For additional information, see Note 10: Debt and Financing Arrangements.
66 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table sets forth the fair value of derivative instruments recognized in the Consolidated Balance Sheets.
April 30, 2012 | April 30, 2011 | |||||||||||||||||||
Other Current Assets |
Other Current Liabilities |
Other Current Assets |
Other Current Liabilities |
Other Noncurrent Liabilities |
||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||
Commodity contracts |
$ | 6,569 | $ | 19,510 | $ | 3,408 | $ | | $ | | ||||||||||
Interest rate contract |
| | 5,423 | | 1,384 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives designated as hedging instruments |
$ | 6,569 | $ | 19,510 | $ | 8,831 | $ | | $ | 1,384 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Commodity contracts |
$ | 3,166 | $ | 3,631 | $ | 9,887 | $ | 5,432 | $ | | ||||||||||
Foreign currency exchange contracts |
436 | 982 | 317 | 3,204 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives not designated as hedging instruments |
$ | 3,602 | $ | 4,613 | $ | 10,204 | $ | 8,636 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative instruments |
$ | 10,171 | $ | 24,123 | $ | 19,035 | $ | 8,636 | $ | 1,384 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Company has elected to not offset fair value amounts recognized for commodity derivative instruments and its cash margin accounts executed with the same counterparty. The Company maintained cash margin accounts of $32,529 and $12,292 at April 30, 2012 and 2011, respectively, that are included in other current assets in the Consolidated Balance Sheets.
The following table presents information on pre-tax commodity contract net gains and losses recognized on derivatives designated as cash flow hedges.
Year Ended April 30, | ||||||||
2012 | 2011 | |||||||
(Losses) gains recognized in other comprehensive (loss) income (effective portion) |
$ | (31,830 | ) | $ | 21,082 | |||
Gains reclassified from accumulated other comprehensive (loss) income to cost of products sold (effective portion) |
1,887 | 14,780 | ||||||
|
|
|
|
|||||
Change in accumulated other comprehensive (loss) income |
$ | (33,717 | ) | $ | 6,302 | |||
|
|
|
|
|||||
(Losses) gains recognized in cost of products sold (ineffective portion) |
$ | (853 | ) | $ | 611 | |||
|
|
|
|
Included as a component of accumulated other comprehensive (loss) income at April 30, 2012 and 2011, were deferred pre-tax net losses of $24,287 and deferred pre-tax net gains of $9,430, respectively, related to commodity contracts. The related tax impact recognized in accumulated other comprehensive (loss) income was a benefit of $8,820 and expense of $3,430 at April 30, 2012 and 2011, respectively. The entire amount of the deferred net loss included in accumulated other comprehensive (loss) income at April 30, 2012, is expected to be recognized in earnings within one year as the related commodity is sold.
The following table presents information on the pre-tax losses recognized on the interest rate swap designated as a cash flow hedge.
Year Ended April 30, | ||||||||
2012 | 2011 | |||||||
Losses recognized in other comprehensive (loss) income (effective portion) |
$ | (6,192 | ) | $ | | |||
Losses reclassified from accumulated other comprehensive (loss) income to interest expense (effective portion) |
(278 | ) | | |||||
|
|
|
|
|||||
Change in accumulated other comprehensive (loss) income |
$ | (5,914 | ) | $ | | |||
|
|
|
|
|||||
Losses recognized in interest expense (ineffective portion) |
$ | (19 | ) | $ | | |||
|
|
|
|
Included as a component of accumulated other comprehensive (loss) income at April 30, 2012, were deferred pre-tax losses of $5,914 related to the termination of the interest rate contract, of which approximately $500 will be recognized over the next 12 months. The related tax benefit recognized in accumulated other comprehensive (loss) income was $2,133 at April 30, 2012.
The J. M. Smucker Company 2012 Annual Report 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table presents the net realized and unrealized gains and losses recognized in cost of products sold on derivatives not designated as qualified hedging instruments.
Year Ended April 30, | ||||||||
2012 | 2011 | |||||||
Gains (losses) on commodity contracts |
$ | 16,306 | $ | (3,994 | ) | |||
Gains (losses) on foreign currency exchange contracts |
951 | (3,290 | ) | |||||
|
|
|
|
|||||
Gains (losses) recognized in cost of products sold (derivatives not designated as hedging instruments) |
$ | 17,257 | $ | (7,284 | ) | |||
|
|
|
|
The following table presents the gross contract notional value of outstanding derivative contracts.
April 30, | ||||||||
2012 | 2011 | |||||||
Commodity contracts |
$ | 983,381 | $ | 869,107 | ||||
Foreign currency exchange contracts |
94,424 | 73,158 | ||||||
Interest rate contract |
| 376,000 |
NOTE 13 | OTHER FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
Financial instruments, other than derivatives, that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade receivables. With respect to trade receivables, the Company believes there is no concentration of risk with any single customer whose failure or nonperformance would materially affect the Companys results other than as discussed in Major Customer of Note 1: Accounting Policies. The Company does not require collateral from its customers. The Companys financial instruments, other than its long-term debt, are recognized at estimated fair value in the Consolidated Balance Sheets.
The following table provides information on the carrying amount and fair value of the Companys financial assets (liabilities).
April 30, 2012 | April 30, 2011 | |||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
Marketable securities |
$ | | $ | | $ | 18,600 | $ | 18,600 | ||||||||
Other investments |
43,217 | 43,217 | 41,560 | 41,560 | ||||||||||||
Derivative financial instruments net |
(13,952 | ) | (13,952 | ) | 9,015 | 9,015 | ||||||||||
Long-term debt |
(2,070,543 | ) | (2,443,514 | ) | (1,304,039 | ) | (1,648,614 | ) |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Companys market assumptions.
68 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for the Companys financial assets (liabilities).
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value
at April 30, 2012 |
|||||||||||||
Other investments: (B) |
||||||||||||||||
Equity mutual funds |
$ | 14,649 | $ | | $ | | $ | 14,649 | ||||||||
Municipal obligations |
| 20,392 | | 20,392 | ||||||||||||
Other investments |
1,132 | 7,044 | | 8,176 | ||||||||||||
Derivatives: (C) |
||||||||||||||||
Commodity contracts net |
(12,788 | ) | (618 | ) | | (13,406 | ) | |||||||||
Foreign currency exchange contracts net |
(1 | ) | (545 | ) | | (546 | ) | |||||||||
Long-term debt (D) |
(777,023 | ) | (1,666,491 | ) | | (2,443,514 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments measured at fair value |
$ | (774,031 | ) | $ | (1,640,218 | ) | $ | | $ | (2,414,249 | ) | |||||
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value at April 30, 2011 |
|||||||||||||
Marketable securities (A) |
$ | | $ | 18,600 | $ | | $ | 18,600 | ||||||||
Other investments: (B) |
||||||||||||||||
Equity mutual funds |
14,011 | | | 14,011 | ||||||||||||
Municipal obligations |
| 20,042 | | 20,042 | ||||||||||||
Other investments |
464 | 7,043 | | 7,507 | ||||||||||||
Derivatives: (C) |
||||||||||||||||
Commodity contracts net |
7,863 | | | 7,863 | ||||||||||||
Foreign currency exchange contracts net |
(2,887 | ) | | | (2,887 | ) | ||||||||||
Interest rate contract net |
| 4,039 | | 4,039 | ||||||||||||
Long-term debt (D) |
| (1,648,614 | ) | | (1,648,614 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments measured at fair value |
$ | 19,451 | $ | (1,598,890 | ) | $ | | $ | (1,579,439 | ) | ||||||
|
|
|
|
|
|
|
|
(A) | The Companys marketable securities consisted entirely of commercial paper at April 30, 2011, and were broker-priced and valued by a third party using valuation techniques which utilize inputs that are derived principally from or corroborated by observable market data. All securities had matured or were sold at values that were consistent with the previously estimated fair values prior to April 30, 2012. |
(B) | The Companys other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets and municipal obligations valued by a third party using valuation techniques which utilize inputs that are derived principally from or corroborated by observable market data. As of April 30, 2012, the Companys municipal obligations are scheduled to mature as follows: $3,536 in 2013, $732 in 2014, $2,739 in 2015, $927 in 2016, and the remaining $12,458 in 2017 and beyond. |
(C) | The Companys Level 1 derivatives are valued using quoted market prices for identical instruments in active markets. The Level 2 derivatives are valued using quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. The Companys interest rate swap was valued using the income approach, observable Level 2 market expectations at the measurement date, and standard valuation techniques to convert future amounts to a single discounted present value. The specific inputs used to value the swap included futures contracts valued based on LIBOR, LIBOR cash and swap rates, and credit risk at commonly quoted intervals. For additional information, see Note 12: Derivative Financial Instruments. |
(D) | The Companys long-term debt is comprised of public Notes classified as Level 1 and private Senior Notes classified as Level 2. The public Notes are traded in an active secondary market and valued using quoted prices. The value of the private Senior Notes is based on the net present value of each interest and principal payment calculated, utilizing an interest rate derived from a fair market yield curve. For additional information, see Note 10: Debt and Financing Arrangements. |
The J. M. Smucker Company 2012 Annual Report 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 14 | INCOME TAXES |
Deferred income taxes reflect the 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 Companys deferred tax assets and liabilities are as follows:
April 30, | ||||||||
2012 | 2011 | |||||||
Deferred tax liabilities: |
||||||||
Intangible assets |
$ | 1,018,262 | $ | 1,025,301 | ||||
Property, plant, and equipment |
106,218 | 111,537 | ||||||
Other |
8,107 | 10,016 | ||||||
|
|
|
|
|||||
Total deferred tax liability |
$ | 1,132,587 | $ | 1,146,854 | ||||
|
|
|
|
|||||
Deferred tax assets: |
||||||||
Post-employment and other employee benefits |
$ | 107,543 | $ | 84,723 | ||||
Tax credit and loss carryforwards |
5,494 | 4,583 | ||||||
Intangible assets |
3,370 | 3,279 | ||||||
Other |
40,719 | 27,668 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
$ | 157,126 | $ | 120,253 | ||||
Valuation allowance for deferred tax assets |
(3,072 | ) | (3,324 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets, less allowance |
$ | 154,054 | $ | 116,929 | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | 978,533 | $ | 1,029,925 | ||||
|
|
|
|
The following table summarizes domestic and foreign loss and credit carryforwards at April 30, 2012.
Related Tax Deduction |
Deferred Tax Asset |
Valuation Allowance |
Expiration Date |
|||||||||||||
Tax carryforwards: |
||||||||||||||||
Federal capital loss carryforward |
$ | 1,917 | $ | 694 | $ | | 2017 | |||||||||
State loss carryforwards |
63,482 | 3,154 | 2,935 | 2013 to 2031 | ||||||||||||
State tax credit carryforwards |
| 1,636 | | 2019 | ||||||||||||
Foreign jurisdictional tax credit carryforwards |
| 10 | | 2015 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total tax carryforwards |
$ | 65,399 | $ | 5,494 | $ | 2,935 | ||||||||||
|
|
|
|
|
|
|
|
The Company evaluates the realizability of deferred tax assets for each of the jurisdictions in which it operates. Included in the overall valuation allowance is $137 for other deferred tax assets where it is more likely than not that those assets will not be realized. The total valuation allowance decreased by $252, $146, and $5,556 in 2012, 2011, and 2010, respectively, primarily due to the expiration of state loss carryforwards that had full valuation allowances.
Deferred income taxes have not been provided on approximately $200,100 of undistributed earnings of foreign subsidiaries since these amounts are considered to be permanently reinvested. Any additional taxes payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by domestic tax deductions or tax credits for foreign taxes paid. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.
70 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Income (loss) before income taxes is as follows:
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Domestic |
$ | 706,366 | $ | 729,654 | $ | 712,226 | ||||||
Foreign |
(5,208 | ) | (12,490 | ) | 18,527 | |||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 701,158 | $ | 717,164 | $ | 730,753 | ||||||
|
|
|
|
|
|
The components of the provision for income taxes are as follows:
Year Ended April 30, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 228,255 | $ | 271,361 | $ | 256,444 | ||||||
Foreign |
6,798 | 4,554 | 6,584 | |||||||||
State and local |
23,579 | 21,568 | 12,907 | |||||||||
Deferred: |
||||||||||||
Federal |
(10,273 | ) | (51,011 | ) | (21,362 | ) | ||||||
Foreign |
(6,867 | ) | (7,338 | ) | (4,386 | ) | ||||||
State and local |
(78 | ) | (1,452 | ) | (13,572 | ) | ||||||
|
|
|
|
|
|
|||||||
Total income tax expense |
$ | 241,414 | $ | 237,682 | $ | 236,615 | ||||||
|
|
|
|
|
|
A reconciliation of the statutory federal income tax rate and the effective income tax rate is as follows:
Year Ended April 30, | ||||||||||||
Percent of Pretax Income |
2012 | 2011 | 2010 | |||||||||
Statutory federal income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local income taxes, net of federal income tax benefit |
2.3 | 2.2 | 1.2 | |||||||||
Domestic manufacturing deduction |
(3.1 | ) | (3.8 | ) | (1.9 | ) | ||||||
Other items net |
0.2 | (0.3 | ) | (1.9 | ) | |||||||
|
|
|
|
|
|
|||||||
Effective income tax rate |
34.4 | % | 33.1 | % | 32.4 | % | ||||||
|
|
|
|
|
|
|||||||
Income taxes paid |
$ | 257,762 | $ | 365,994 | $ | 212,981 | ||||||
|
|
|
|
|
|
The J. M. Smucker Company 2012 Annual Report 71 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The Company files income tax returns in the U.S. and various state, local, and foreign jurisdictions. The Company is no longer subject to examination, with limited exceptions, for tax years prior to 2008 for U.S. federal, state, and local income taxes and tax years prior to 2005 for foreign income taxes. During 2011, the Company reached agreement with the Internal Revenue Service (IRS) on proposed adjustments resulting from the examination of its federal income tax returns for the tax periods ended April 30, 2008, June 30, 2009, and April 30, 2010. The agreement did not have a material effect on the Companys effective tax rate or financial position. The Company is a voluntary participant in the Compliance Assurance Process (CAP) offered by the IRS and is currently under a CAP examination for the tax year ended April 30, 2012. Through the contemporaneous exchange of information with the IRS, this program is designed to identify and resolve tax positions with the IRS prior to the filing of a tax return, which allows the Company to remain current with its IRS examinations.
Within the next 12 months, it is reasonably possible that the Company could decrease its unrecognized tax benefits by an estimated $636, primarily as a result of the expiration of statute of limitations periods.
The Companys unrecognized tax benefits as of April 30, 2012 and 2011, were $23,977 and $20,261, respectively. Of the unrecognized tax benefits, $16,410 and $13,939 would affect the effective tax rate, if recognized, as of April 30, 2012 and 2011, respectively. The Companys accrual for tax-related net interest and penalties totaled $1,704 and $1,792 as of April 30, 2012 and 2011, respectively. The amount of tax-related net interest and penalties charged to earnings totaled $88 for 2012, and credited to earnings totaled $497 and $594 during 2011 and 2010, respectively.
A reconciliation of the Companys unrecognized tax benefits is as follows:
2012 | 2011 | |||||||
Balance at May 1, |
$ | 20,261 | $ | 15,322 | ||||
Increases: |
||||||||
Current year tax positions |
3,617 | 5,237 | ||||||
Prior year tax positions |
2,103 | 4,106 | ||||||
Foreign currency translation |
157 | | ||||||
Decreases: |
||||||||
Prior year tax positions |
| 271 | ||||||
Settlement with tax authorities |
287 | 31 | ||||||
Expiration of statute of limitations periods |
1,874 | 3,985 | ||||||
Foreign currency translation |
| 117 | ||||||
|
|
|
|
|||||
Balance at April 30, |
$ | 23,977 | $ | 20,261 | ||||
|
|
|
|
72 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 15 | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
Comprehensive income is included in the Statements of Consolidated Shareholders Equity. The components of accumulated other comprehensive (loss) income as shown in the Consolidated Balance Sheets are as follows:
Foreign Currency Translation Adjustment |
Pension and Other Postretirement Liabilities |
Unrealized Gain (Loss) on Available-for- Sale Securities |
Unrealized (Loss) Gain on Cash Flow Hedging Derivatives |
Accumulated Other Comprehensive (Loss) Income |
||||||||||||||||
Balance at May 1, 2009 |
$ | 11,062 | $ | (67,693 | ) | $ | (2,209 | ) | $ | 1,570 | $ | (57,270 | ) | |||||||
Reclassification adjustments |
| | | (2,494 | ) | (2,494 | ) | |||||||||||||
Current period credit (charge) |
45,926 | (18,004 | ) | 4,162 | 3,128 | 35,212 | ||||||||||||||
Income tax benefit (expense) |
| 5,691 | (1,510 | ) | (210 | ) | 3,971 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at April 30, 2010 |
$ | 56,988 | $ | (80,006 | ) | $ | 443 | $ | 1,994 | $ | (20,581 | ) | ||||||||
Reclassification adjustments |
| | | (3,128 | ) | (3,128 | ) | |||||||||||||
Current period credit (charge) |
24,773 | (10,004 | ) | 2,124 | 9,430 | 26,323 | ||||||||||||||
Income tax benefit (expense) |
| 4,076 | (765 | ) | (2,296 | ) | 1,015 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at April 30, 2011 |
$ | 81,761 | $ | (85,934 | ) | $ | 1,802 | $ | 6,000 | $ | 3,629 | |||||||||
Reclassification adjustments |
| | | (9,430 | ) | (9,430 | ) | |||||||||||||
Current period (charge) credit |
(14,785 | ) | (73,137 | ) | 1,167 | (30,201 | ) | (116,956 | ) | |||||||||||
Income tax benefit (expense) |
| 24,808 | (425 | ) | 14,383 | 38,766 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at April 30, 2012 |
$ | 66,976 | $ | (134,263 | ) | $ | 2,544 | $ | (19,248 | ) | $ | (83,991 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) is determined using the applicable deferred tax rate for each component of accumulated other comprehensive (loss) income.
The J. M. Smucker Company 2012 Annual Report 73 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 16 | GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION |
On October 13, 2011, the Company filed a registration statement on Form S-3 registering certain securities described therein, including debt securities which are guaranteed by certain of the Companys subsidiaries. The Company issued $750.0 million of 3.50 percent Notes pursuant to the registration statement that are fully and unconditionally guaranteed, on a joint and several basis, by the following 100 percent wholly-owned subsidiaries of the Company: J. M. Smucker LLC and The Folgers Coffee Company (subsidiary guarantors). The following condensed consolidated financial information for the Company, the subsidiary guarantors, and the non-guarantor subsidiaries is provided. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Companys 100 percent wholly-owned subsidiary guarantors and non-guarantor subsidiaries. The Company has accounted for investments in subsidiaries using the equity method.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Year Ended April 30, 2012 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 4,302,743 | $ | 1,547,757 | $ | 3,822,370 | $ | (4,147,088 | ) | $ | 5,525,782 | |||||||||
Cost of products sold |
3,741,054 | 1,408,792 | 2,682,636 | (4,151,923 | ) | 3,680,559 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
561,689 | 138,965 | 1,139,734 | 4,835 | 1,845,223 | |||||||||||||||
Selling, distribution, and administrative expenses, restructuring, and merger and integration costs |
243,392 | 61,457 | 660,327 | | 965,176 | |||||||||||||||
Amortization and impairment charges |
11,196 | | 81,454 | | 92,650 | |||||||||||||||
Other operating (income) expense net |
(1,325 | ) | (1,251 | ) | 11,690 | | 9,114 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income |
308,426 | 78,759 | 386,263 | 4,835 | 778,283 | |||||||||||||||
Interest (expense) income net |
(80,675 | ) | 2,969 | (2,086 | ) | | (79,792 | ) | ||||||||||||
Other income (expense) net |
1,404,340 | 443 | (3,605 | ) | (1,398,511 | ) | 2,667 | |||||||||||||
Equity in net earnings of subsidiaries |
(1,095,007 | ) | 184,217 | 79,192 | 831,598 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income Before Income Taxes |
537,084 | 266,388 | 459,764 | (562,078 | ) | 701,158 | ||||||||||||||
Income taxes |
77,340 | 1,140 | 162,934 | | 241,414 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 459,744 | $ | 265,248 | $ | 296,830 | $ | (562,078 | ) | $ | 459,744 | |||||||||
|
|
|
|
|
|
|
|
|
|
74 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Year Ended April 30, 2011 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 3,880,940 | $ | 2,805,614 | $ | 3,759,833 | $ | (5,620,644 | ) | $ | 4,825,743 | |||||||||
Cost of products sold |
3,196,825 | 2,546,492 | 2,884,851 | (5,600,942 | ) | 3,027,226 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
684,115 | 259,122 | 874,982 | (19,702 | ) | 1,798,517 | ||||||||||||||
Selling, distribution, and administrative expenses, restructuring, and merger and integration costs |
216,731 | 79,263 | 626,182 | | 922,176 | |||||||||||||||
Amortization and impairment charges |
5,188 | 64,675 | 21,580 | | 91,443 | |||||||||||||||
Other operating (income) expense net |
(665 | ) | (2,599 | ) | 3,890 | | 626 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income |
462,861 | 117,783 | 223,330 | (19,702 | ) | 784,272 | ||||||||||||||
Interest (expense) income net |
(67,687 | ) | 3,400 | (2,795 | ) | | (67,082 | ) | ||||||||||||
Other (expense) income net |
(1,338 | ) | 1,735 | (423 | ) | | (26 | ) | ||||||||||||
Equity in net earnings of subsidiaries |
203,115 | 83,879 | 67,256 | (354,250 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income Before Income Taxes |
596,951 | 206,797 | 287,368 | (373,952 | ) | 717,164 | ||||||||||||||
Income taxes |
117,469 | 21,838 | 98,375 | | 237,682 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 479,482 | $ | 184,959 | $ | 188,993 | $ | (373,952 | ) | $ | 479,482 | |||||||||
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Year Ended April 30, 2010 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 3,675,770 | $ | 2,899,461 | $ | 3,723,605 | $ | (5,693,547 | ) | $ | 4,605,289 | |||||||||
Cost of products sold |
3,259,807 | 2,383,363 | 2,858,293 | (5,682,864 | ) | 2,818,599 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
415,963 | 516,098 | 865,312 | (10,683 | ) | 1,786,690 | ||||||||||||||
Selling, distribution, and administrative expenses, restructuring, and merger and integration costs |
193,036 | 107,407 | 613,311 | | 913,754 | |||||||||||||||
Amortization and impairment charges |
10,200 | 65,681 | 9,434 | | 85,315 | |||||||||||||||
Other operating (income) expense net |
(22,546 | ) | 7,083 | 12,175 | | (3,288 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income |
235,273 | 335,927 | 230,392 | (10,683 | ) | 790,909 | ||||||||||||||
Interest (expense) income net |
(53,264 | ) | 12,429 | (21,559 | ) | | (62,394 | ) | ||||||||||||
Other income (expense) net |
151 | 17,609 | (15,522 | ) | | 2,238 | ||||||||||||||
Equity in net earnings of subsidiaries |
393,208 | 61,459 | 35,223 | (489,890 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income Before Income Taxes |
575,368 | 427,424 | 228,534 | (500,573 | ) | 730,753 | ||||||||||||||
Income taxes |
81,230 | 77,280 | 78,105 | | 236,615 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 494,138 | $ | 350,144 | $ | 150,429 | $ | (500,573 | ) | $ | 494,138 | |||||||||
|
|
|
|
|
|
|
|
|
|
The J. M. Smucker Company 2012 Annual Report 75 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2012 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 108,281 | $ | | $ | 121,427 | $ | | $ | 229,708 | ||||||||||
Inventories |
| 161,411 | 815,030 | (14,865 | ) | 961,576 | ||||||||||||||
Other current assets |
334,220 | 3,499 | 114,462 | | 452,181 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Current Assets |
442,501 | 164,910 | 1,050,919 | (14,865 | ) | 1,643,465 | ||||||||||||||
Property, Plant, and Equipment |
220,354 | 389,163 | 486,572 | | 1,096,089 | |||||||||||||||
Investments in Subsidiaries and Intercompany |
5,684,496 | 4,241,145 | 702,550 | (10,628,191 | ) | | ||||||||||||||
Other Noncurrent Assets |
||||||||||||||||||||
Goodwill |
981,606 | | 2,073,012 | | 3,054,618 | |||||||||||||||
Other intangible assets net |
435,713 | | 2,751,294 | | 3,187,007 | |||||||||||||||
Other noncurrent assets |
59,992 | 11,137 | 62,918 | | 134,047 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Other Noncurrent Assets |
1,477,311 | 11,137 | 4,887,224 | | 6,375,672 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,824,662 | $ | 4,806,355 | $ | 7,127,265 | $ | (10,643,056 | ) | $ | 9,115,226 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
Current Liabilities |
$ | 323,608 | $ | 101,714 | $ | 191,650 | $ | | $ | 616,972 | ||||||||||
Noncurrent Liabilities |
||||||||||||||||||||
Long-term debt |
2,020,543 | | | | 2,020,543 | |||||||||||||||
Deferred income taxes |
104,822 | 311 | 887,559 | | 992,692 | |||||||||||||||
Other noncurrent liabilities |
212,303 | 20,031 | 89,299 | | 321,633 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Noncurrent Liabilities |
2,337,668 | 20,342 | 976,858 | | 3,334,868 | |||||||||||||||
Shareholders Equity |
5,163,386 | 4,684,299 | 5,958,757 | (10,643,056 | ) | 5,163,386 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,824,662 | $ | 4,806,355 | $ | 7,127,265 | $ | (10,643,056 | ) | $ | 9,115,226 | ||||||||||
|
|
|
|
|
|
|
|
|
|
76 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2011 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 206,845 | $ | | $ | 113,000 | $ | | $ | 319,845 | ||||||||||
Inventories |
| 182,531 | 700,750 | (19,702 | ) | 863,579 | ||||||||||||||
Other current assets |
364,377 | 8,190 | 81,008 | | 453,575 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Current Assets |
571,222 | 190,721 | 894,758 | (19,702 | ) | 1,636,999 | ||||||||||||||
Property, Plant, and Equipment |
193,321 | 305,519 | 369,042 | | 867,882 | |||||||||||||||
Investments in Subsidiaries and Intercompany |
4,872,622 | 802,936 | 1,209,603 | (6,885,161 | ) | | ||||||||||||||
Other Noncurrent Assets |
||||||||||||||||||||
Goodwill |
981,606 | | 1,831,140 | | 2,812,746 | |||||||||||||||
Other intangible assets net |
440,174 | 3,116 | 2,496,720 | | 2,940,010 | |||||||||||||||
Other noncurrent assets |
50,012 | 15,106 | 1,830 | | 66,948 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Other Noncurrent Assets |
1,471,792 | 18,222 | 4,329,690 | | 5,819,704 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,108,957 | $ | 1,317,398 | $ | 6,803,093 | $ | (6,904,863 | ) | $ | 8,324,585 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
Current Liabilities |
$ | 234,262 | $ | 81,239 | $ | 167,175 | $ | | $ | 482,676 | ||||||||||
Noncurrent Liabilities |
||||||||||||||||||||
Long-term debt |
1,304,039 | | | | 1,304,039 | |||||||||||||||
Deferred income taxes |
115,985 | | 926,838 | | 1,042,823 | |||||||||||||||
Other noncurrent liabilities |
162,308 | 16,447 | 23,929 | | 202,684 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Noncurrent Liabilities |
1,582,332 | 16,447 | 950,767 | | 2,549,546 | |||||||||||||||
Shareholders Equity |
5,292,363 | 1,219,712 | 5,685,151 | (6,904,863 | ) | 5,292,363 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,108,957 | $ | 1,317,398 | $ | 6,803,093 | $ | (6,904,863 | ) | $ | 8,324,585 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The J. M. Smucker Company 2012 Annual Report 77 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended April 30, 2012 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided by (Used for) Operating Activities |
$ | 1,622,917 | $ | 165,048 | $ | (1,057,036 | ) | $ | | $ | 730,929 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Businesses acquired, net of cash acquired |
| | (737,255 | ) | | (737,255 | ) | |||||||||||||
Additions to property, plant, and equipment |
(52,994 | ) | (133,605 | ) | (87,645 | ) | | (274,244 | ) | |||||||||||
Equity investment in affiliate |
| | (35,874 | ) | | (35,874 | ) | |||||||||||||
Proceeds from divestitures |
| | 9,268 | | 9,268 | |||||||||||||||
Sales and maturities of marketable securities |
18,600 | | | | 18,600 | |||||||||||||||
Proceeds from disposal of property, plant, and equipment |
168 | 396 | 3,475 | | 4,039 | |||||||||||||||
Other net |
| (3,495 | ) | (16,903 | ) | | (20,398 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash Used for Investing Activities |
(34,226 | ) | (136,704 | ) | (864,934 | ) | | (1,035,864 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Proceeds from long-term debt |
748,560 | | | | 748,560 | |||||||||||||||
Quarterly dividends paid |
(213,667 | ) | | | | (213,667 | ) | |||||||||||||
Purchase of treasury shares |
(315,780 | ) | | | | (315,780 | ) | |||||||||||||
Proceeds from stock option exercises |
2,826 | | | | 2,826 | |||||||||||||||
Intercompany |
(1,906,881 | ) | (28,344 | ) | 1,935,225 | | | |||||||||||||
Other net |
(2,313 | ) | | | | (2,313 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash (Used for) Provided by Financing Activities |
(1,687,255 | ) | (28,344 | ) | 1,935,225 | | 219,626 | |||||||||||||
Effect of exchange rate changes on cash |
| | (4,828 | ) | | (4,828 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(98,564 | ) | | 8,427 | | (90,137 | ) | |||||||||||||
Cash and cash equivalents at beginning of year |
206,845 | | 113,000 | | 319,845 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents at End of Year |
$ | 108,281 | $ | | $ | 121,427 | $ | | $ | 229,708 | ||||||||||
|
|
|
|
|
|
|
|
|
|
( ) | Denotes use of cash |
78 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended April 30, 2011 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided by Operating Activities |
$ | 212,428 | $ | 92,965 | $ | 86,169 | $ | | $ | 391,562 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Additions to property, plant, and equipment |
(59,072 | ) | (53,416 | ) | (67,592 | ) | | (180,080 | ) | |||||||||||
Purchases of marketable securities |
(75,637 | ) | | | | (75,637 | ) | |||||||||||||
Sales and maturities of marketable securities |
57,100 | | | | 57,100 | |||||||||||||||
Proceeds from disposal of property, plant, and equipment |
1,081 | 305 | 4,444 | | 5,830 | |||||||||||||||
Other net |
(43 | ) | 37 | (120 | ) | | (126 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash Used for Investing Activities |
(76,571 | ) | (53,074 | ) | (63,268 | ) | | (192,913 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Repayments of long-term debt |
(10,000 | ) | | | | (10,000 | ) | |||||||||||||
Proceeds from long-term debt |
400,000 | | | | 400,000 | |||||||||||||||
Quarterly dividends paid |
(194,024 | ) | | | | (194,024 | ) | |||||||||||||
Purchase of treasury shares |
(389,135 | ) | | | | (389,135 | ) | |||||||||||||
Proceeds from stock option exercises |
14,525 | | | | 14,525 | |||||||||||||||
Intercompany |
24,152 | (39,891 | ) | 15,739 | | | ||||||||||||||
Other net |
7,740 | | 475 | | 8,215 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash (Used for) Provided by Financing Activities |
(146,742 | ) | (39,891 | ) | 16,214 | | (170,419 | ) | ||||||||||||
Effect of exchange rate changes on cash |
| | 8,045 | | 8,045 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(10,885 | ) | | 47,160 | | 36,275 | ||||||||||||||
Cash and cash equivalents at beginning of year |
217,730 | | 65,840 | | 283,570 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents at End of Year |
$ | 206,845 | $ | | $ | 113,000 | $ | | $ | 319,845 | ||||||||||
|
|
|
|
|
|
|
|
|
|
( ) | Denotes use of cash |
The J. M. Smucker Company 2012 Annual Report 79 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended April 30, 2010 | ||||||||||||||||||||
The J. M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided by (Used for) Operating Activities |
$ | 499,197 | $ | 218,064 | $ | (3,783 | ) | $ | | $ | 713,478 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Additions to property, plant, and equipment |
(41,148 | ) | (62,324 | ) | (33,511 | ) | | (136,983 | ) | |||||||||||
Proceeds from divestitures |
19,554 | | | | 19,554 | |||||||||||||||
Sales and maturities of marketable securities |
13,519 | | | | 13,519 | |||||||||||||||
Proceeds from disposal of property, plant, and equipment |
| 185 | 20 | | 205 | |||||||||||||||
Other net |
(706 | ) | | (32 | ) | | (738 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash Used for Investing Activities |
(8,781 | ) | (62,139 | ) | (33,523 | ) | | (104,443 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Repayment of bank note payable |
| (350,000 | ) | | | (350,000 | ) | |||||||||||||
Repayments of long-term debt |
(275,000 | ) | | | | (275,000 | ) | |||||||||||||
Quarterly dividends paid |
(166,224 | ) | | | | (166,224 | ) | |||||||||||||
Purchase of treasury shares |
(5,569 | ) | | | | (5,569 | ) | |||||||||||||
Proceeds from stock option exercises |
6,413 | | | | 6,413 | |||||||||||||||
Intercompany |
(258,696 | ) | 194,075 | 64,621 | | | ||||||||||||||
Other net |
2,393 | | (561 | ) | | 1,832 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash (Used for) Provided by Financing Activities |
(696,683 | ) | (155,925 | ) | 64,060 | | (788,548 | ) | ||||||||||||
Effect of exchange rate changes on cash |
| | 6,390 | | 6,390 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(206,267 | ) | | 33,144 | | (173,123 | ) | |||||||||||||
Cash and cash equivalents at beginning of year |
423,997 | | 32,696 | | 456,693 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents at End of Year |
$ | 217,730 | $ | | $ | 65,840 | $ | | $ | 283,570 | ||||||||||
|
|
|
|
|
|
|
|
|
|
( ) | Denotes use of cash |
80 The J. M. Smucker Company 2012 Annual Report |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 17 | COMMON SHARES |
Voting: The Companys Amended Articles of Incorporation (Articles) provide that each holder of an outstanding common share is entitled to one vote on each matter submitted to a vote of the shareholders except for the following specific matters:
| any matter that relates to or would result in the dissolution or liquidation of the Company; |
| the adoption of any amendment of the Articles or the Regulations of the Company, or the adoption of amended Articles, other than the adoption of any amendment or amended Articles that increases the number of votes to which holders of common shares are entitled or expands the matters to which time-phase voting applies; |
| any proposal or other action to be taken by the shareholders of the Company, relating to the Companys Rights Agreement, dated as of May 20, 2009, between the Company and Computershare Trust Company, N.A. or any successor plan; |
| any matter relating to any stock option plan, stock purchase plan, executive compensation plan, executive benefit plan, or other similar plan, arrangement, or agreement; |
| adoption of any agreement or plan of or for the merger, consolidation, or majority share acquisition of the Company or any of its subsidiaries with or into any other person, whether domestic or foreign, corporate or noncorporate, or the authorization of the lease, sale, exchange, transfer, or other disposition of all, or substantially all, of the Companys assets; |
| any matter submitted to the Companys shareholders pursuant to Article Fifth (which relates to procedures applicable to certain business combinations) or Article Seventh (which relates to procedures applicable to certain proposed acquisitions of specified percentages of the Companys outstanding common shares) of the Articles, as they may be further amended, or any issuance of common shares of the Company for which shareholder approval is required by applicable stock exchange rules; and |
| any matter relating to the issuance of common shares, or the repurchase of common shares that the Board determines is required or appropriate to be submitted to the Companys shareholders under the Ohio Revised Code or applicable stock exchange rules. |
On the matters listed above, common shares are entitled to 10 votes per share, if they meet the requirements set forth in the Articles. Common shares which would be entitled to 10 votes per share must meet one of the following criteria:
| common shares beneficially owned as of November 6, 2008, and for which there has not been a change in beneficial ownership after November 6, 2008; or |
| common shares received through the Companys various equity plans which have not been sold or otherwise transferred since November 6, 2008. |
In the event of a change in beneficial ownership, the new owner of that common share will be entitled to only one vote with respect to that share on all matters until four years pass without a further change in beneficial ownership of the share.
Shareholders Rights Plan: Pursuant to a Shareholders Rights Plan adopted by the Companys Board of Directors on May 20, 2009, one share purchase right is associated with each of the Companys outstanding common shares.
Under the plan, the rights will initially trade together with the Companys common shares and will not be exercisable. In the absence of further action by the directors, the rights generally will become exercisable and allow the holder to acquire the Companys common shares at a discounted price if a person or group acquires 10 percent or more of the outstanding common shares. Rights held by persons who exceed the applicable threshold will be void. Shares held by members of the Smucker family are not subject to the threshold. If exercisable, each right entitles the shareholder to buy one common share at a discounted price. Under certain circumstances, the rights will entitle the holder to buy shares in an acquiring entity at a discounted price.
The plan also includes an exchange option. In general, if the rights become exercisable, the directors may, at their option, effect an exchange of part or all of the rights, other than rights that have become void, for common shares. Under this option, the Company would issue one common share for each right, in each case subject to adjustment in certain circumstances.
The Companys directors may, at their option, redeem all rights for $0.001 per right, generally at any time prior to the rights becoming exercisable. The rights will expire June 3, 2019, unless earlier redeemed, exchanged, or amended by the directors.
The J. M. Smucker Company 2012 Annual Report 81 |
DIRECTORS AND OFFICERS
The J. M. Smucker Company
DIRECTORS
Vincent C. Byrd President and Chief Operating Officer The J. M. Smucker Company
R. Douglas Cowan A Director and Retired Chairman and Chief Executive Officer The Davey Tree Expert Company Kent, Ohio
Kathryn W. Dindo A, E Retired Vice President and Chief Risk Officer FirstEnergy Corp. Akron, Ohio
Paul J. Dolan E Chairman and Chief Executive Officer Cleveland Indians Cleveland, Ohio
Elizabeth Valk Long A, E Former Executive Vice President Time Inc. New York, New York
Nancy Lopez Knight G Founder Nancy Lopez Golf Company Auburn, Alabama
Gary A. Oatey G Chairman and Chief Executive Officer Oatey Co. Cleveland, Ohio
Alex Shumate G Managing Partner, North America Squire, Sanders & Dempsey L.L.P. Columbus, Ohio
Mark T. Smucker President, U.S. Retail Coffee The J. M. Smucker Company
Richard K. Smucker Chief Executive Officer The J. M. Smucker Company
Timothy P. Smucker Chairman of the Board The J. M. Smucker Company
William H. Steinbrink G Principal Unstuk LLC Shaker Heights, Ohio
Paul Smucker Wagstaff President, U.S. Retail Consumer Foods The J. M. Smucker Company |
EXECUTIVE OFFICERS
Timothy P. Smucker Chairman of the Board
Richard K. Smucker Chief Executive Officer
Dennis J. Armstrong Senior Vice President, Logistics and Operations Support
Mark R. Belgya Senior Vice President and Chief Financial Officer
James A. Brown Vice President, U.S. Grocery Sales
Vincent C. Byrd President and Chief Operating Officer
John W. Denman Vice President and Controller
Barry C. Dunaway Senior Vice President and Chief Administrative Officer
Tamara J. Fynan Vice President, Marketing Services
Jeannette L. Knudsen Vice President, General Counsel and Corporate Secretary
David J. Lemmon Vice President and Managing Director, Canada
John F. Mayer Vice President, U.S. Retail Sales
Kenneth A. Miller Vice President and General Manager, Foodservice
Steven Oakland President, International, Foodservice, and Natural Foods
Andrew G. Platt Vice President, Information Services and Chief Information Officer
Christopher P. Resweber Senior Vice President, Corporate Communications and Public Affairs
Julia L. Sabin Vice President, Industry and Government Affairs
Mark T. Smucker President, U.S. Retail Coffee |
Paul Smucker Wagstaff President, U.S. Retail Consumer Foods
Albert W. Yeagley Vice President, Industry and Government Affairs
PROPERTIES
Corporate Office: Orrville, Ohio
Domestic Manufacturing Locations:
Chico, California Cincinnati, Ohio El Paso, Texas Grandview, Washington Harahan, Louisiana Havre de Grace, Maryland Lexington, Kentucky Memphis, Tennessee Miami, Florida New Bethlehem, Pennsylvania New Orleans, Louisiana (2) Orrville, Ohio Oxnard, California Ripon, Wisconsin Scottsville, Kentucky Seneca, Missouri Suffolk, Virginia Toledo, Ohio
International Manufacturing Locations:
Sherbrooke, Quebec, Canada Ste. Marie, Quebec, Canada
A Audit Committee Member E Executive Compensation Committee Member G Nominating and Corporate Governance Committee Member |
82 The J. M. Smucker Company 2012 Annual Report |
Shareholder information
WWW.CORPORATEREPORT.COM
Corporate Reports Inc. Atlanta, GA
Corporate Office
The J.M. Smucker Company
One Strawberry Lane
Orrville, Ohio 44667
Telephone: (330) 682-3000
Stock Listing
The J.M. Smucker Companys common shares are listed on the New York Stock Exchange ticker symbol SJM.
Corporate WebSite
To learn more about The J.M. Smucker Company, visit smuckers.com.
Annual Meeting
The annual meeting will be held at 11:00 a.m. Eastern Time, Wednesday, August 15, 2012, in the Fisher Auditorium at the Ohio Agricultural Research and Development Center, 1680 Madison Avenue, Wooster, Ohio 44691.
Corporate News and Reports
Corporate news releases, annual reports, and Securities and Exchange Commission filings, including Forms 10-K, 10-Q, and 8-K, are available free of charge on the Companys website. They are also available without cost to shareholders who submit a written request to:
The J.M. Smucker Company Attention: Corporate Secretary One Strawberry Lane
Orrville, Ohio 44667
Certifications
The Companys Chief Executive Officer and Chief Financial Officer have certified to the New York Stock Exchange that they are not aware of any violation by the Company of the New York Stock Exchange corporate governance standards. The Company has also filed with the Securities and Exchange Commission certain certifications relating to the quality of the Companys public disclosures. These certifications are filed as exhibits to the Companys Annual Report on Form 10-K.
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. Please reference Forward-Looking Statements located on page 36 in the Managements Discussion and Analysis section.
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Akron, Ohio
Dividends
The Companys Board of Directors typically declares a cash dividend each quarter. Dividends are generally payable on the first business day of March, June, September, and December. The record date is approximately two weeks before the payment date. The Companys dividend disbursement agent is Computershare Investor Services, LLC.
Shareholder Services
The transfer agent and registrar for the Company, Computershare Investor Services, LLC, is responsible for assisting registered shareholders with a variety of matters, including:
Shareholder investment program (CIPSM)
direct purchase of Company common shares
dividend reinvestment
automatic monthly cash investments
Book-entry share ownership
Share transfer matters (including name changes, gifting, and inheritances)
Direct deposit of dividend payments
Nonreceipt of dividend checks
Lost share certificates
Changes of address
Online shareholder account access
Form 1099 income inquiries (including requests for duplicate copies)
Shareholders may contact Shareholder Services at the corporate offices regarding other shareholder inquiries.
Transfer Agent and Registrar
Computershare Investor Services, LLC 250 Royall Street
Canton, Massachusetts 02021 Telephone: (800) 456-1169
Telephone outside the U.S., Canada, and Puerto Rico: (312) 360-5254
Website: computershare.com/investor
Designed by:
The J. M. Smucker Company is the owner of all trademarks referenced herein, except for the following which are used under license: Pillsbury®, the Barrelhead logo and the Doughboy character are trademarks of The Pillsbury Company, LLC; Carnation® is a trademark of Société des Produits Nestlé S.A.; Dunkin Donuts® is a registered trademark of DD IP Holder, LLC; and Douwe Egberts® and Pickwick® are registered trademarks of Sara Lee/DE B.V. Borden® and Elsie are also trademarks used under license.
One Strawberry Lane / Orrville, Ohio 44667 / (330) 682-3000
smuckers.com
Exhibit 21
SUBSIDIARIES OF THE COMPANY
(As of April 30, 2012)1
Subsidiaries |
State or Jurisdiction of Incorporation or Organization | |
CAFÉ Holding, LLC |
Ohio | |
DECS International Mexico, S. de R.L. C.V. |
Mexico | |
Eagle Family Foods, Inc. |
Delaware | |
EB International Inc. |
Barbados | |
Europes Best International SRL |
Barbados | |
Fantasia Confections, Inc. |
California | |
Folgers Café Servicos de Pesquisas, Ltda. |
Brazil | |
IMC Bakery International, Inc. |
Delaware | |
Inversiones 91060, C.A. |
Venezuela | |
JMS Foodservice, LLC |
Delaware | |
J.M. Smucker de Mexico, S.A. de C.V. |
Mexico (domesticated in Delaware) | |
J.M. Smucker Holdings, LLC |
Ohio | |
J.M. Smucker LLC |
Ohio | |
Juice Creations Co. |
Ohio | |
King Kelly, LLC |
Ohio | |
Knudsen & Sons, Inc. |
Ohio | |
Martha White Foods, Inc. |
Delaware | |
Mary Ellens, Incorporated |
Ohio | |
Millstone Coffee, Inc. |
Washington | |
Milnot Company |
Delaware | |
Rowland Coffee Roasters, Inc. |
Ohio | |
Santa Cruz Natural Incorporated |
California | |
Simply Smuckers, Inc. |
Ohio | |
Smucker Direct, Inc. |
Ohio | |
Smucker Foods, Inc. |
Delaware | |
Smucker Foods of Canada Corp. |
Federal Canadian Corporation | |
Smucker Foods Holdings Company |
Ohio | |
Smucker Foodservice, Inc. |
Delaware | |
Smucker Fruit Processing Co. |
Ohio | |
Smucker Holdings, Inc. |
Ohio | |
Smucker Hong Kong Limited |
Hong Kong, Peoples Republic of China | |
Smucker International, Inc. |
Ohio | |
Smucker International Holding Company |
Ohio | |
Smucker Manufacturing, Inc. |
Ohio | |
Smucker Mexico, LLC |
Ohio | |
Smucker Natural Foods, Inc. |
California | |
Smucker Retail Foods, Inc. |
Ohio | |
Smucker Sales and Distribution Company |
Ohio | |
Smucker Services Company |
Ohio | |
The Dickinson Family, Inc. |
Ohio | |
The Folgers Coffee Company |
Delaware | |
The Folger Coffee Company |
Ohio |
1 | Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of certain subsidiaries of the Company have been omitted because such unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of April 30, 2012. |
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Annual Report (Form 10-K) of The J. M. Smucker Company of our reports dated June 20, 2012, with respect to the consolidated financial statements of The J. M. Smucker Company and the effectiveness of internal control over financial reporting of The J. M. Smucker Company, included in the 2012 Annual Report to Shareholders of The J. M. Smucker Company.
We also consent to the incorporation by reference in the following Registration Statements of our reports dated June 20, 2012, with respect to the consolidated financial statements of The J. M. Smucker Company and the effectiveness of internal control over financial reporting of The J. M. Smucker Company incorporated by reference in this Annual Report (Form 10-K) of The J. M. Smucker Company for the year ended April 30, 2012:
Registration |
Registration Number |
Description | ||||
Form S-8 | 33-21273 | 1987 Stock Option Plan | ||||
Form S-8 | 33-38011 | 1987 Stock Option Plan | ||||
Form S-8 | 333-98335 | The J. M. Smucker Company Amended and Restated 1998 Equity and Performance Incentive Plan | ||||
Form S-8 | 333-116622 | Amended and Restated 1986 Stock Option Incentive Plan of The J. M. Smucker Company Amended and Restated 1989 Stock-Based Incentive Plan of The J. M. Smucker Company Amended and Restated 1997 Stock-Based Incentive Plan of The J. M. Smucker Company | ||||
Form S-8 | 333-137629 | The J. M. Smucker Company 2006 Equity Compensation Plan | ||||
Form S-8 | 333-139167 | The J. M. Smucker Company Nonemployee Director Deferred Compensation Plan | ||||
Form S-8 | 333-139170 | Non-Qualified Stock Option Agreement Between International Multifoods Corporation (predecessor-in-interest to the Registrant) and Daryl Schaller | ||||
Form S-8 | 333-170653 | The J. M. Smucker Company 2010 Equity and Incentive Compensation Plan | ||||
Form S-3 | 333-177279 | Automatic Shelf Registration Statement |
/s/ Ernst & Young LLP
Akron, Ohio
June 22, 2012
Exhibit 24
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that VINCENT C. BYRD, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Vincent C. Byrd | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that KATHRYN W. DINDO, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Kathryn W. Dindo | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that PAUL J. DOLAN, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 | /s/ Paul J. Dolan | |
Date | Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that ELIZABETH VALK LONG, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 | /s/ Elizabeth Valk Long | |
Date | Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that NANCY LOPEZ KNIGHT, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 | /s/ Nancy Lopez Knight | |
Date | Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that RICHARD K. SMUCKER, director of The J. M. Smucker Company, hereby appoints Mark R. Belgya and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 | /s/ Richard K. Smucker | |
Date | Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that TIMOTHY P. SMUCKER, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Timothy P. Smucker | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WILLIAM H. STEINBRINK, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ William H. Steinbrink | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that R. DOUGLAS COWAN, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 | /s/ R. Douglas Cowan | |
Date | Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that GARY A. OATEY, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Gary A. Oatey | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that ALEX SHUMATE, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Alex Shumate | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that MARK T. SMUCKER, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Mark T. Smucker | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that PAUL SMUCKER WAGSTAFF, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ Paul Smucker Wagstaff | |
Date |
Director |
THE J. M. SMUCKER COMPANY
REGISTRATION ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that JOHN W. DENMAN, controller of The J. M. Smucker Company, hereby appoints Richard K. Smucker, Mark R. Belgya, and Jeannette L. Knudsen, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 2012, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned controller might or could do in person, in furtherance of the foregoing.
June 22, 2012 |
/s/ John W. Denman | |
Date |
Controller |
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Richard K. Smucker, Chief Executive Officer of The J. M. Smucker Company, certify that:
(1) | I have reviewed this annual report on Form 10-K of The J. M. Smucker Company; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 25, 2012
/s/ Richard K. Smucker | ||
Name: | Richard K. Smucker | |
Title: | Chief Executive Officer |
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Mark R. Belgya, Senior Vice President and Chief Financial Officer of The J. M. Smucker Company, certify that:
(1) | I have reviewed this annual report on Form 10-K of The J. M. Smucker Company; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 25, 2012
/s/ Mark R. Belgya | ||
Name: | Mark R. Belgya | |
Title: | Senior Vice President and Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of The J. M. Smucker Company (the Company) for the year ended April 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officers knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
/s/ Richard K. Smucker | ||
Name: |
Richard K. Smucker | |
Title: |
Chief Executive Officer |
/s/ Mark R. Belgya | ||
Name: |
Mark R. Belgya | |
Title: |
Senior Vice President and Chief Financial Officer |
Date: June 25, 2012
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.