SMUCKER J M CO 10-K 2005
Documents found in this filing:
WASHINGTON, D.C. 20549
þ ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
For the fiscal year ended April 30, 2005
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the transition period from ___ to ___
Commission file number 1-5111
THE J. M. SMUCKER COMPANY
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code (330) 682-3000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. þ
Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes þ No o
The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2004, was $2,387,354,779. As of June 30, 2005, 58,700,018 common shares of The J. M. Smucker Company were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrants definitive Proxy Statement, dated July 11, 2005, for the August 19, 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report, and certain sections of the 2005 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 18.
TABLE OF CONTENTS
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 Smuckers (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 United States. The Companys operations outside the United States are principally in Canada although products are exported to other countries as well. Sales outside the United States represent approximately 18 percent of total consolidated Company sales for fiscal 2005.
The Companys U.S. retail market segment includes the consumer and consumer oils and baking businesses and represents a strategic focus area for the Company the sale of branded food products with leadership positions to consumers through mainstream domestic retail outlets in North America. The special markets segment represents the aggregation of the foodservice, beverage, Canada, international, and industrial businesses.
On June 18, 2004, the Company completed its acquisition of International Multifoods Corporation (Multifoods). Information regarding the acquisition is hereby incorporated by reference to the 2005 Annual Report to Shareholders, on pages 32 through 34 under Note B: Multifoods Acquisition.
On June 16, 2004, the Company sold its Australian subsidiary, Henry Jones Foods, Pty. Ltd. to SPC Ardmona Ltd. On October 6, 2004, the Company sold its Brazilian subsidiary, Smucker do Brasil, Ltda., to Cargill, Incorporated. On February 18, 2005, the Company sold the Multifoods U.S. Foodservice and bakery products businesses, as well as the Canadian foodservice locations operated under the Gourmet Baker name, which were acquired as part of Multifoods, to Value Creation Partners, Inc. Information regarding these divestitures is hereby incorporated by reference to the 2005 Annual Report to Shareholders, on pages 34 and 35 under Note C: Discontinued Operations.
Principal Products. The principal products of the Company, which are sold in both the Companys U.S. retail market segment and special markets segment, are peanut butter, shortening and oils, fruit spreads, flour and baking ingredients, baking mixes and ready-to-spread frostings, potato mixes, fruit and vegetable juices, beverages, dessert toppings, syrups, pickles and condiments, and frozen sandwiches.
Product sales information for the years 2005, 2004, and 2003 is hereby incorporated by reference to the 2005 Annual Report to Shareholders, on pages 37 through 39 under Note F: Reportable Segments.
In the U.S. retail market segment, the Companys products are primarily sold through brokers to food retailers, food wholesalers, club stores, mass merchandisers, and military commissaries. In the special markets segment, the Companys products are distributed through retail channels, foodservice distributors and operators (i.e., hotels and restaurants, schools and universities, healthcare operators), other food manufacturers, health and natural food stores, and in foreign countries.
Sources and Availability of Raw Materials. The raw materials used by the Company are primarily commodities and agricultural-based products. The fruit, pickle, and condiment raw materials used by the Company in the production of its food products are purchased from independent growers and suppliers. Sweeteners, peanuts, oils, wheat and flour, and other ingredients are obtained from various other sources. Although availability and costs may vary from year to year, raw materials are available from numerous sources and the Company believes that it will continue to be able to obtain adequate supplies.
Trademarks and Patents. The Companys products are produced under certain patents and marketed under numerous trademarks owned by the Company or one of its subsidiaries. Major trademarks, utilized primarily in the U.S. retail market, include: Smuckers, Jif, Crisco, Pillsbury, Martha
White, Hungry Jack, Uncrustables, Simply Jif, Golden Temple, Softasilk, Dickinsons, Adams, Laura Scudders, Goober, Idaho Spuds, Pet, Magic Shell, and Simple Measures. Major trademarks primarily utilized in the special markets include: Smuckers, Jif, Crisco, Bicks, Robin Hood, R. W. Knudsen Family, Golden Temple, Santa Cruz Organic, Spritzer, Double Fruit, Simply Nutritious, Recharge, and Red River. In addition, the Company or one of its subsidiaries licenses the use of several other trademarks, none of which individually is material to the Companys business.
Other slogans or designs considered to be important trademarks include (without limitation) the slogan, With a name like Smuckers, it has to be good, Choosy Moms Choose Jif, Choosy Dads Choose Jif, Great Meals Start Here, Start Something Good with Crisco, Weve Got Ice Cream Covered, The Spread that Makes Bread Smile, For the Hungry Jack in Your House, Goodness Gracious, Its Good, the Smuckers banner, the Crock Jar shape, the Gingham design, and the Strawberry logo. The Pillsbury Barrelhead and Pillsbury Doughboy are registered trademarks of The Pillsbury Company, used under a 20-year, perpetually renewable, royalty-free license.
The Company considers all of these trademarks and the Pillsbury license to be essential to its business.
Seasonality. The Companys consumer oils and baking business is moderately seasonal around the fall bake period and as a result impacts sales and profits in the Companys second and third quarters. The overall impact, however, is not considered significant.
Working Capital. Working capital requirements are greatest during the first half of the Companys fiscal year due to the timing of fruit and pickle procurement and the buildup of inventories necessary to support the fall bake season.
Customers. Sales to Wal-Mart Stores, Inc., and subsidiaries amounted to approximately 16 percent, 16 percent, and 14 percent of net sales in 2005, 2004 and 2003, respectively. These sales are primarily included in the U.S. retail market. No other customer exceeded ten percent of net sales for any year.
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 negotiation of profits or termination of contracts at the election of the government.
Competition. The Company is the branded market leader in the peanut butter, shortening and oils, fruit spreads, dessert toppings, and health and natural foods beverages categories. The Companys business is highly competitive as all of its brands compete for retail shelf space with other advertised and branded products as well as unadvertised and private label products.
The Jif brand has been a leader in the peanut butter category for over 20 years, while the Companys natural peanut butter business, sold under the Smuckers, Adams, and Laura Scudders brands, maintains a strong leadership position in the natural peanut butter category. Crisco has been a leader in the shortening and cooking oils category for over 50 years. Crisco holds the number one position among branded competitors in both the oils and shortening categories. The oils category in which Crisco competes is a more competitive category than the others in which the Companys brands compete due to a larger private label presence and more volatile commodity pricing. The Companys fruit spread brands, including Smuckers and Dickinsons, compete with three major branded lines of fruit spreads and many private label brands. The competing brands exist on both a national and regional level.
The Company competes in the dessert and baking mixes (DBM) market that includes mixes for cakes, cookies, brownies, muffins, and quickbreads, 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 Betty Crocker, which is marketed by General Mills, Inc., and Duncan Hines, which is marketed by
Pinnacle Food Group, Inc. The Companys Hungry Jack brand competes in three primary market categories: pancake mix, dehydrated potatoes, and table syrup. The Company competes primarily with Aunt Jemima, which is marketed by PepsiCos Quaker Foods North America segment, in pancake mix and table syrups, Mrs. Butterworths and Log Cabin which is marketed by Pinnacle Food Group, Inc., in table syrups, and Betty Crocker in dehydrated potatoes.
The continued growth of alternative store formats, product and packaging innovations, technological advances, and new industry techniques have all added additional variables for companies in the food industry to consider in order to remain competitive. The principal methods of and factors in competition are product quality, price, packaging, customer service, advertising, and promotion. Positive factors pertaining to the Companys competitive position include well-recognized brands, strong brand management, varied product offerings, product innovation, and a strong distribution network.
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 approximated $10,397,000, $7,496,000, and $6,354,000 in 2005, 2004, and 2003, respectively.
Environmental Matters. Compliance with the provisions of 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.
However, on May 5, 2005, representatives from the California Environmental Protection Agency Department of Toxic Substances Control (CEPA) informed Smucker Quality Beverages, Inc., a wholly-owned subsidiary of the Company (SQB), that CEPA is conducting an investigation to identify a source area for chlorinated volatile organic compounds that have been found in domestic water supply wells at residential properties near SQBs property at Speedway Ave, Chico, California. It is possible that CEPA will identify the SQB Chico property as a contributing source of the contamination because of the operations of prior owners of the property. In such event, SQB may be responsible for investigation and remediation expenses, the full amount of which cannot reasonably be estimated at this time. The water used at the Chico facility and in the manufacturing process is purified and does not contain chlorinated volatile organic compounds.
Employees. At April 30, 2005, the Company had approximately 3,700 full-time employees, worldwide. Approximately 1,400 of these employees, located at 12 facilities, are covered by union contracts. These contracts vary in term depending on the location. The Company believes its relations with its current employees are generally good.
Executive Officers of the Company
The names, ages as of July 1, 2005, 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.
Segment and Geographic Information. Information concerning reportable segments including international operations for the years 2005, 2004, and 2003 is hereby incorporated by reference to the 2005 Annual Report to Shareholders, on pages 37 through 39, under Note F: Reportable Segments. The Companys Canada sales primarily represents the sale of Canadian produced product to Canadian customers.
Certain Forward-Looking Statements. This report includes certain 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. These risks and uncertainties are hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Certain Forward-Looking Statements on page 19.
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 Exchange Act, is provided, free of charge, on the Companys Web site (www.smuckers.com) as soon as reasonably practicable after it files those reports electronically with the SEC.
Item 2. Properties.
The table below lists all of the Companys manufacturing and fruit processing facilities at April 30, 2005. All of the Companys properties are maintained and updated on a regular basis, and the Company continues to make investments for expansion and technological improvements. The Company believes that existing capacity at these facilities is sufficient to sustain current operations and anticipated growth.
The properties listed below are owned, except for the West Fargo, North Dakota, and the land at the Pt. Colborne, Ontario, facility and the Montreal, Quebec, bakery mix facility that are leased. There are no material performance obligations associated with the properties listed below. The Companys corporate headquarters are located in Orrville, Ohio and the Companys Canadian headquarters are located in Markham, Ontario. The locations indicated by an asterisk are currently expected to close during fiscal 2006 as part of the Companys restructuring plans as described in the Companys 2005 Annual Report to Shareholders on pages 36 and 37 under Note E: Restructuring..
Item 3. Legal Proceedings.
On May 5, 2005, representatives from the California Environmental Protection Agency Department of Toxic Substances Control (CEPA) informed Smucker Quality Beverages, Inc., a wholly-owned subsidiary of the Company (SQB), that CEPA is conducting an investigation to identify a source area for chlorinated volatile organic compounds that have been found in domestic water supply wells at residential properties near SQBs property at Speedway Ave, Chico, California. It is possible that CEPA will identify the SQB Chico property as a contributing source of the contamination because of the operations of prior owners of the property. In such event, SQB may be responsible for investigation and remediation expenses, the full amount of which cannot reasonably be estimated at this time. The water used at the Chico facility and in the manufacturing process is purified and does not contain chlorinated volatile organic compounds.
Item 4. Submissions of Matters to a Vote of Security Holders.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) The information pertaining to the market for the Companys common shares and other related shareholder information is hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Stock Price Data on page 10.
(b) Not applicable.
(c) Issuer Purchases of Equity Securities
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 hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under the following captions and page numbers: Five-Year Summary of Selected Financial Data on page 9, Note A: Accounting Policies on pages 28 through 32, Note B: Multifoods Acquisition on pages 32 through 34, Note C: Discontinued Operations on pages 34 and 35, Note D: Merger on pages 35 and 36, and Note E: Restructuring on pages 36 and 37.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
Managements discussion and analysis of results of operations and financial condition, including a discussion of capital resources and liquidity, and critical accounting estimates and policies, is hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Managements Discussion and Analysis, on pages 11 through 19.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Quantitative and qualitative disclosures about market risk are hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Derivative Financial Instruments and Market Risk on pages 18 and 19.
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company at April 30, 2005 and 2004, and for each of the years in the three-year period ended April 30, 2005, with the report of independent registered public accounting firm and selected unaudited quarterly financial data, are hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Summary of Quarterly Results of Operations on page 10 and beginning with Report of Management on Internal Control Over Financial Reporting on page 20 through Report of Management on Responsibility for Financial Reporting on page 55. The related financial statement schedule is filed as part of this Form 10-K on Schedule II.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of April 30, 2005, the Companys principal executive officers and principal financial officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls. There were no changes in the Companys internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
The reports of management and the independent registered public accounting firm on internal controls over financial reporting are hereby incorporated by reference to the Companys 2005 Annual Report to Shareholders under Report of Management on Internal Control Over Financial Reporting on page 20, and under Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on page 21.
Item 9B. Other Information.
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors and nominees for directorship is incorporated herein by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on pages 5 through 7 under the caption Election of Directors. Information regarding audit committee members and audit committee financial experts is incorporated herein by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on page 14 under the caption Report of the Audit Committee. Information regarding material changes to the procedures by which security holders may recommend nominees to the Companys Board is incorporated herein by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on page 8 under the caption Shareholder Recommendations for Director Nominees.
Information regarding executive officers of the Company is hereby incorporated by reference to Part I of this Annual Report on Form 10-K on pages 5 and 6.
Information regarding regarding Section 16(a) reporting compliance is incorporated herein by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, under the caption Section 16(a) Beneficial Ownership Compliance on page 28.
At its April 2003 Board meeting, the Companys Board of Directors adopted a revised Policy on Ethics and Conduct, further revised April 2005, which applies to the Companys directors, principal executive officers, principal financial officer, and principal accounting officers. The Companys Board of Directors have adopted revised charters for each of the Audit, Executive Compensation, and Nominating and Corporate Governance committees and its Corporate Governance Guidelines. The Corporate Governance Guidelines were subsequently amended to reflect Independent Directors standards under the final rules of the New York Stock Exchange (NYSE Rule 303A.02). Copies of these documents are available on the Companys Web site (www.smuckers.com).
Item 11. Executive Compensation.
Information regarding the compensation of directors and executive officers is incorporated by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on pages 11 and 12 under the caption Director Compensation, and beginning with Report of the Executive Compensation Committee on page 16 and continuing through the compensation tables ending on page 25.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners, of the named executive officers, and of directors and executive officers as a group, is hereby incorporated by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on pages 27 through 28, under Ownership of Common Shares.
Information regarding securities the Company has authorized for issuance under equity compensation plans as of April 30, 2005, is hereby incorporated by reference to the Companys definitive Proxy Statement, dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on page 29, under the caption Equity Compensation Plan Information.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions is hereby incorporated by reference to the Companys definitive Proxy Statement dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, under the caption Election of Directors on page 5 through 7 and under the caption Related Party Transactions on page 25.
Item 14. Principal Accountant Fees and Services.
Information regarding accountants fees and services is hereby incorporated by reference to the Companys definitive Proxy Statement dated July 11, 2005, for the 2005 Annual Meeting of Shareholders on August 19, 2005, on page 15, under the caption Independent Auditors Fees.
Item 15. Exhibits and Financial Statement Schedules.
The index to Consolidated Financial Statements and Financial Statement Schedule is included on page F-1 of this Report.
* Management contract or compensatory plan or arrangement.
All other required exhibits are either inapplicable to the Company or require no answer.
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.
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.
INDEX OF EXHIBITS
* Management contract or compensatory plan or arrangement.
THE J. M. SMUCKER COMPANY
ANNUAL REPORT ON FORM 10-K
ITEMS 16(a) (1) AND (2), (c) AND (d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENT SCHEDULE
All other schedules are omitted because they are not applicable or because the information required is included in the Consolidated Financial Statements or the notes thereto.
THE J. M. SMUCKER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 2005, 2004, and 2003
(Dollars in Thousands)
(A) Uncollectible accounts written off, net of recoveries.