J.M. Smucker Company - 10-Q quarterly report FY

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the transition period from ____________ to ____________

Commission File Number     1-5111     

THE J. M. SMUCKER COMPANY

STRAWBERRY LANE
ORRVILLE, OHIO 44667
(330) 682-3000

The Company 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 and has been subject to such filing requirements for the past 90 days.

The Company had 24,419,754 Common Shares outstanding on August 31, 2001.

The Exhibit Index is located at Sequential Page No. 11.

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PART I. FINANCIAL INFORMATION

THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)

Item 1. Financial Statements

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See notes to condensed consolidated financial statements

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THE J. M. SMUCKER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A — Basis of Presentation

      The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three-month period ended July 31, 2001, are not necessarily indicative of the results that may be expected for the year ended April 30, 2002. For further information, reference is made to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2001.

Note B — Common Shares

      At July 31, 2001, 70,000,000 Common Shares were authorized. There were 24,419,354 and 24,359,281 shares outstanding at July 31, 2001 and April 30, 2001, respectively. Shares outstanding are shown net of 8,005,222 and 8,065,295 treasury shares at July 31, 2001 and April 30, 2001, respectively.

Note C — Operating Segments

      The Company has two reportable segments, domestic and international. The domestic segment represents the aggregation of the consumer, foodservice, beverage, specialty foods, and industrial business areas. The following table sets forth operating segments information:

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Note D — Financing Arrangements

      The Company has uncommitted lines of credit providing up to $90,000,000 for short-term borrowings. No amounts were outstanding at July 31, 2001.

Note E — Income Per Share

      The following table sets forth the computation of earnings per Common Share and earnings per Common Share — assuming dilution:

Note F — Comprehensive Income

      During the quarter ended July 31, 2001 and 2000, total comprehensive income was $6,794,000 and $7,729,000, respectively. Comprehensive income consists of net income and foreign currency translation adjustments.

Note G — Recently Issued Accounting Standards

      In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) which is effective for business combinations completed subsequent to June 30, 2001, and No. 142, Goodwill and Other Intangible Assets (SFAS 142) which is effective for the Company in the first quarter of fiscal 2003. Under the new rules, goodwill and intangibles deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has not yet completed its evaluation of the impact of adopting SFAS 141 and SFAS 142.

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Item 2. Management’s Discussion and Analysis

      This discussion and analysis deals with comparisons of material changes in the condensed, consolidated financial statements for the three-month periods ended July 31, 2001 and 2000, respectively.

Results of Operations

      Sales for the quarter ended July 31, 2001, were $169,792,000, up 2% compared to $166,328,000 in the prior year.

      Sales in the domestic business segment were up 4% over the prior year quarter as a result of strong sales in the consumer, foodservice, beverage, and specialty business areas. Consumer business area sales increased by nearly 7%, led by increases in traditional and sugar-free fruit spreads. The Company’s record share of market in the fruit spreads category continues to grow, and both toppings and natural peanut butter sales were strong in the quarter.

      Sales in the foodservice area were up 10%, as sales and distribution of the Smucker’s Uncrustables line of thaw-and-serve peanut butter and jelly sandwiches to schools and traditional foodservice customers continued to increase. These increases offset slight softness in sales of portion control products as the impact of the economic downturn continues to adversely affect certain restaurant customers. In the beverage area, sales were up 9.5% over the prior year. Sales of R.W. Knudsen Family and Santa Cruz Organic products led the increase, and the recently introduced Smucker’s powdered lemonade product also contributed. The specialty area saw a 7.5% increase in sales, resulting from sales of new products in its nonbranded business channel.

      The industrial area of the domestic segment continued to be challenged during the quarter by price competition, soft sales with major customers, and declining margins. Sales for the quarter were down 14% from the prior year, as new business opportunities failed to develop as quickly as had been anticipated. The Company expects however, that several new business opportunities already identified will begin to contribute during the remainder of the year.

      The strong U.S. dollar, primarily in comparison to Australian and Brazilian currencies, continues to have a negative impact on the international business segment. International sales were down 9% or $2,136,000 from the prior year first quarter. Almost 80% of that decline related to adverse exchange rate impact. Despite the negative exchange rates, Brazilian sales increased 12% over the prior year quarter. Mexico and the Latin American markets also reported sales growth for the quarter. Canadian sales were down 3%, all due to exchange rates, while sales in Australia declined by 25% due to a combination of exchange rate effects, softness in the Australian fruit spread category, and increased competitive activity.

      Cost of products remained comparable to prior year at 66.5% compared to 66.4% as fruit costs, while anticipated to increase slightly overall this year, were down from the first quarter of last year. Offsetting the favorable fruit costs were higher utility costs and costs associated with expanded production capacity for Smucker’s Uncrustables.

      Selling, distribution, and administrative costs increased primarily due to increases in marketing expenses to support new initiatives and amortization charges associated with information systems implementations.

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      Interest expense increased over the prior year due to the long-term debt placement completed during the second quarter of last year. During the quarter the Company capitalized approximately $156,000 in interest associated with the Company’s information technology reengineering project.

Financial Condition — Liquidity and Capital Resources

      The financial position of the Company remains strong. Cash and cash equivalents decreased only $133,000 during the first quarter, notwithstanding that this is the period in which a large portion of the Company’s fruit purchases take place. Other significant uses of cash during the quarter were capital expenditures and the payment of dividends.

      Assuming there are no material acquisitions or other significant investments, the Company believes that cash on hand together with cash generated by operations and existing lines of credit will be sufficient to meet its fiscal 2002 requirements, including the payment of dividends and interest on outstanding debt.

Recently Issued Accounting Standards

      In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) which is effective for business combinations completed subsequent to June 30, 2001, and No. 142, Goodwill and Other Intangible Assets (SFAS 142) which is effective for the Company in the first quarter of fiscal 2003. Under the new rules, goodwill and intangibles deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has not yet completed its evaluation of the impact of adopting SFAS 141 and SFAS 142.

Certain Forward-Looking Statements

      This quarterly 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 include, but are not limited to, the success and cost of introducing new products, general competitive activity in the market, the ability of business areas to achieve sales targets and the costs associated with attempting to do so, the ability of the Company to successfully effect price increases, the ability to improve sales and earnings performance in the Company’s formulated ingredient business, costs associated with the implementation of new business and information systems, raw material and ingredient cost trends, and foreign currency exchange and interest rate fluctuations.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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INDEX OF EXHIBITS

That are filed with the Commission and
The New York Stock Exchange