SMUCKER J M CO 10-K 2008
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the fiscal year ended April 30, 2008
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)
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
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 o No þ
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 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):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2007, was $2,771,180,344. As of June 23, 2008, 54,767,534 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 21, 2008, are incorporated by reference into Part III of this Report, and certain sections of the registrants 2008 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 13 percent of total consolidated Company sales for fiscal 2008.
The Company has two reportable segments: U.S. retail market and special markets. The Companys U.S. retail market segment, comprising over 74 percent of the Companys net sales, includes the consumer and consumer oils and baking businesses and represents a large 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 special markets segment represents the aggregation of the foodservice, beverage, Canada, and international businesses.
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, canned milk, baking mixes and ready-to-spread frostings, flour and baking ingredients, juices and beverages, frozen sandwiches, dessert toppings, syrups, pickles and condiments, and potato side dishes.
Product sales information for the years 2008, 2007, and 2006 is incorporated herein by reference to information set forth in the Companys 2008 Annual Report to Shareholders, on pages 44 through 46 under Note E: 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, discount stores, and military commissaries. In the special markets segment, the Companys products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (i.e., restaurants, schools and universities, healthcare operators), 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. Glass, plastic, 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. Sweeteners, peanuts, oils, milk, wheat and flour, corn, and other ingredients are obtained from various suppliers. The cost and availability of many of these commodities have fluctuated, and may continue to fluctuate, over time. The Company also uses commodity futures and options to manage some of its costs. Raw materials are available from numerous sources, and the Company believes that it will continue to be able to obtain adequate supplies. The Company has not historically encountered shortages of key raw materials. The Company considers its relationship with key raw material suppliers to be good.
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 segment, include: Smuckers, Jif, Crisco, Eagle Brand, Mary Ellen, Dutch Girl, Martha White, LaPina, White Lily, Hungry Jack, Uncrustables, Simply Jif, Golden Temple, Softasilk, Dickinsons, Crosse & Blackwell, Funfetti, Adams, Laura Scudders, Goober, Pet, Magic Shell, and Simple Measures. Major trademarks primarily utilized in the special markets segment include: Smuckers, Jif, Crisco, Plate Scapers, Bicks, Five Roses, Robin Hood, Carnation, Europes Best, R. W. Knudsen Family, Santa Cruz Organic, Double Fruit, Simply Nutritious, Recharge, and Red River. Pillsbury, the Pillsbury Barrelhead logo, and Pillsbury Doughboy are trademarks of The
Pillsbury Company, used by the Company under a 20-year, perpetually renewable, royalty-free license. Carnation is a trademark of Societe des Produits Nestle S.A., used under license. Borden and the Elsie design are trademarks used under license. 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.
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, Purely The Finest, Kids Bake It Fun, Start Something Good with Crisco, Weve Got Ice Cream Covered, Everybodys Happy When Its Hungry Jack, Goodness Gracious, Its Good, the Smuckers banner, the Crock Jar shape, the Gingham design, and the Strawberry logo.
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, which generally impacts sales and profits in the Companys second and third quarters. The overall impact of seasonal trends, however, is not considered significant.
Working Capital. Working capital requirements are greatest during the first half of the Companys fiscal year mainly due to the timing of fruit and vegetable procurement and the buildup of inventories necessary to support the fall bake season.
Customers. Sales to Wal-Mart Stores, Inc., and its subsidiaries amounted to approximately 20 percent, 20 percent, and 18 percent of net sales in 2008, 2007, and 2006, respectively. These sales are primarily included in the U.S. retail market segment. No other customer exceeded 10 percent of net sales during 2008, 2007, and 2006.
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, sweetened condensed milk, 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 categories for over 50 years. Crisco holds a leading position among branded competitors in both the oils and shortening categories. The oils category in which Crisco competes is a more competitive category due to a larger private label presence and volatile commodity pricing. The Companys fruit spread brands, including Smuckers and Dickinsons, hold the leading position in the category and compete with one major branded line of fruit spreads and many private label brands. The competing brands exist on both a national and a regional level.
The Company 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 two major national and many private label brands. The Companys Hungry Jack brand competes in three primary market categories: pancake mix, potato side dishes, and table syrup. The Company competes with several major national as well private label brands in these categories.
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 category with over 50 percent market share with its Eagle Brand and Magnolia brands. In the evaporated milk category, the Company has a significant presence with its production of private label brands where it competes primarily with one major national brand.
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, customer service, advertising, and promotion. Positive factors pertaining to the Companys competitive position include well-recognized brands, superior product quality, experienced brand management, a single national grocery broker in the United States, 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 were $9,547,000, $9,680,000, and $10,781,000 in 2008, 2007, and 2006, 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.
Employees. At April 30, 2008, the Company had approximately 3,250 full-time employees, worldwide. Approximately 31 percent of these employees, located at nine 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 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 2008, 2007, and 2006 is incorporated herein by reference to information set forth in the Companys 2008 Annual Report to Shareholders, on pages 44 through 46, under Note E: Reportable Segments. The Companys international operations are primarily in Canada with risks similar to those associated with the U.S. retail market segment. The Companys Canada sales primarily represent the sale of Canadian produced products to Canadian customers.
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 2008 Annual Report to Shareholders under the caption Forward-Looking Statements on page 26.
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/fc/investor/) 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 the Annual Report on Form 10-K and in the Companys other filings with 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.
Item 1B. Unresolved Staff Comments
Item 2. Properties.
The table below lists all of the Companys manufacturing and processing facilities at April 30, 2008. 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 near-term growth.
The properties listed below are owned, except for the West Fargo, North Dakota, facility that is leased. Other than customary lease terms and rental payment obligations, 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.
Item 3. Legal Proceedings.
Item 4. Submissions of Matters to a Vote of Security Holders.
Executive Officers of the Registrant.
The names, ages as of July 1, 2008, 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.
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 incorporated herein by reference to the information set forth in the Companys 2008 Annual Report to Shareholders under the caption Stock Price Data on page 15 and the caption Comparison of Five-Year Cumulative Total Shareholder Return on page 16.
(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 incorporated herein by reference to the information set forth in the Companys 2008 Annual Report to Shareholders under the following captions and page numbers: Five-Year Summary of Selected Financial Data on page 14, Note A: Accounting Policies on pages 36 through 40, Note C: Acquisitions on pages 41 and 42, and Note D: Restructuring on pages 43 and 44.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Managements 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 Companys 2008 Annual Report to Shareholders under the caption Managements Discussion and Analysis, on pages 17 through 26.
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 2008 Annual Report to Shareholders under the caption Derivative Financial Instruments and Market Risk on pages 24 and 25.
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company at April 30, 2008 and 2007, and for each of the years in the three-year period ended April 30, 2008, 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 Companys 2008 Annual Report to Shareholders under the caption Summary of Quarterly Results of Operations on page 15 and beginning with Report of Management on Internal Control Over Financial Reporting on page 27 through Note R: Common Shares on page 63. 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. The Companys management, including the Companys principal executive officers 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 Securities Exchange Act of 1934 as amended (the Exchange Act)) as of April 30, 2008, (the Evaluation Date). Based on that evaluation, the Companys principal executive officers 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 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 occurred during the fourth quarter ended April 30, 2008, 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 2008 Annual Report to Shareholders under the heading Report of Management on Internal Control Over Financial Reporting on page 27, and under the heading Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on page 28, which reports are incorporated herein by reference.
Item 9B. Other Information.
Item 10. Directors and Executive Officers of the Registrant.
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, 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 21, 2008. 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 Companys Board of Directors has adopted a Policy on Ethics and Conduct, last revised April 2005, which applies to the Companys directors, principal executive officers, principal financial officer, and principal accounting officer. The Companys 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. The Corporate Governance Guidelines 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.
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 Executive Compensation Committee Interlocks and Insider Participation in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 21, 2008.
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 21, 2008.
Item 13. Certain Relationships and Related Transactions.
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 21, 2008.
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 Preapproval Policies and Procedures in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 21, 2008.
Item 15. Exhibits and Financial Statement Schedules.
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
THE J. M. SMUCKER COMPANY
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND 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, 2008, 2007, and 2006
(Dollars in Thousands)