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SMUCKER J M CO 10-K 2008 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended April 30, 2008
or
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)
Registrant’s 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 registrant’s 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 registrant’s 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 registrant’s 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
Table of Contents
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 Company’s sales are in the United
States. The Company’s 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
Company’s U.S. retail market segment, comprising over 74 percent of the Company’s 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
Company’s 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 Company’s 2008 Annual Report to Shareholders, on pages 44
through 46 under “Note E: Reportable Segments.”
In the U.S. retail market segment, the Company’s 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 Company’s 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 Company’s 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: Smucker’s, Jif, Crisco,
Eagle Brand, Mary Ellen, Dutch Girl, Martha White, LaPina, White Lily, Hungry Jack, Uncrustables,
Simply Jif, Golden Temple, Softasilk, Dickinson’s, Crosse & Blackwell, Funfetti, Adams, Laura
Scudder’s, Goober, Pet, Magic Shell, and Simple Measures. Major trademarks primarily utilized in
the special markets segment include: Smucker’s, Jif, Crisco, Plate Scapers, Bick’s, Five Roses,
Robin Hood, Carnation, Europe’s 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
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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 Company’s business.
Slogans or designs considered to be important trademarks include (without limitation) the
slogan, “With A Name Like Smucker’s, It Has To Be Good,” “Choosy Moms Choose Jif,” “Purely The
Finest,” “Kids Bake It Fun,” “Start Something Good with Crisco,” “We’ve Got Ice Cream Covered,”
“Everybody’s Happy When It’s Hungry Jack,” “Goodness Gracious, It’s Good,” the Smucker’s 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 Company’s consumer oils and baking business is moderately seasonal
around the “fall bake” period, which generally impacts sales and profits in the Company’s 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 Company’s 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 Company’s 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 Company’s 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
Company’s natural peanut butter business, sold under the Smucker’s, Adam’s, and Laura Scudder’s
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 Company’s fruit spread brands, including Smucker’s
and Dickinson’s, 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 Company’s 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.
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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
Company’s 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 Company’s 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.
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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 Company’s 2008 Annual Report to Shareholders, on pages 44 through 46,
under “Note E: Reportable Segments.” The Company’s international operations are primarily in
Canada with risks similar to those associated with the U.S. retail market segment. The Company’s
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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s business, financial condition, and results of operations.
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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, 2008. All of the Company’s 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 Company’s corporate
headquarters are located in Orrville, Ohio, and the Company’s Canadian headquarters are located in
Markham, Ontario.
Item 3. Legal Proceedings.
None.
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Item 4. Submissions of Matters to a Vote of Security Holders.
None.
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.
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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 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
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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 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. 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 2008
Annual Report to Shareholders under the caption “Management’s 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 Company’s 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 Company’s 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.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Company’s management, including
the Company’s principal executive officers and principal financial officer, evaluated the
effectiveness of the Company’s 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 Company’s principal executive
officers and principal financial officer have concluded that as of the Evaluation Date, the
Company’s 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.
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Changes in Internal Controls. There were no changes in the Company’s 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 Company’s
internal control over financial reporting.
Management’s report on internal control over financial reporting and the attestation report of
the Company’s independent registered public accounting firm are set forth in the Company’s 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.
None.
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PART III
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 Company’s
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 Company’s Board of Directors has adopted a Policy on Ethics and Conduct, last revised
April 2005, which applies to the Company’s directors, principal executive officers, principal
financial officer, and principal accounting officer. The Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on August 21, 2008.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
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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.
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.
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INDEX OF EXHIBITS
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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.
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THE J. M. SMUCKER COMPANY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 2008, 2007, and 2006
(Dollars in Thousands)
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