J.M. Smucker Company - 10-K annual report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2003

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 1-5111

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 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. [X] Yes [   ] No

     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. [X]

     Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
[X] Yes [   ] No

     As of July 17, 2003, 49,955,510 common shares of The J. M. Smucker Company were issued and outstanding. The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2002, was $1,641,869,648.

     Certain sections of the registrant’s definitive Proxy Statement, dated July 8, 2003, for the August 14, 2003 Annual Meeting of Shareholders, and of the 2003 Annual Report to Shareholders are incorporated by reference into Parts I, II, III, and IV of this Report.

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PART I

Item 1. Business

     The Company. The J. M. Smucker 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 distribution outside the United States is principally in Canada, Australia, and Brazil although products are exported to other countries as well. International sales represent less than ten percent of total consolidated Company sales for fiscal 2003.

     On June 1, 2002, the Company merged the Jif peanut butter and Criscoshortening and oils businesses of The Procter & Gamble Company with and into the Company. Information regarding the merger is hereby incorporated by reference from the 2003 Annual Report to Shareholders, on page 28 under “Note C: Merger.” As a result of the Jif and Crisco merger, the Company realigned its reportable business segment structure resulting in two new segments: U.S. retail market and special markets. The U.S. retail market includes the consumer and consumer oils businesses and represents the primary strategic focus area for the Company – the sale of branded food products with leadership positions to consumers through mainstream domestic retail outlets. The special markets segment represents the aggregation of the foodservice, international, industrial, and beverage businesses. Prior year segment information has been restated to conform to the new structure.

     Principal Products. The principal products of the Company are peanut butter, shortening and oils, fruit spreads, industrial fruit products, fruit and vegetable juices, beverages, dessert toppings, and syrups.

     Product sale information for the years 2003, 2002, and 2001 is hereby incorporated by reference from the 2003 Annual Report to Shareholders, on pages 29 through 31, under “Note E: Reportable Segments.”

     In the U.S. retail market the Company’s products are primarily sold through brokers to food retailers, food wholesalers, club stores, mass merchandisers, and military commissaries. In the special markets, the Company’s products are distributed through foreign countries, foodservice distributors and operators (i.e., restaurants, schools and universities, healthcare operators), other food manufacturers, and health and natural food stores.

     Sources and Availability of Raw Materials. The fruit raw materials used by the Company in the production of its food products are purchased from independent growers and suppliers. Sweeteners, peanuts, oils, and other ingredients are obtained from various other sources.

     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, primarily utilized in the U.S. retail market include: Smucker’s, Jif, Crisco, Simply Jif, Dickinson’s, Adams, Laura Scudder’s, Goober, Simply 100% Fruit, Magic Shell, Sundae Syrup, Smucker’s Snackers, and Uncrustables. Major trademarks primarily utilized in the special markets include: Smucker’s, R. W. Knudsen Family, After The Fall, Simply Nutritious, Recharge, Santa Cruz Organic, Spritzer, IXL, and Double Fruit. 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.

     Other slogans or designs considered to be important trademarks include (without limitation) the slogan, “With a name like Smucker’s, it has to be good,” “Over 100 Years of Family-Made Goodness,”

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“Choosy Moms Choose Jif,” theSmucker’s banner, the Crock Jar shape, the Gingham design, and the Strawberry logo.

     The Company considers all of these trademarks to be essential to its business.

     Seasonality. Historically, the Company’s business has not been highly seasonal. The Company’s Crisco business is somewhat seasonal around the fall bake period and as a result impacts sales and profits in the Company’s second and third quarters. The overall impact however, is not considered significant.

     Working Capital. The addition of the Jif and Crisco businesses has had a positive impact on working capital. Prior to the merger, the Company’s working capital requirements were greatest during the late spring and summer months due to seasonal procurement of fruits. Raw material inventories for Jif and Criscobusinesses are purchased and used throughout the course of the fiscal year, thus favorably impacting working capital.

     Customers. Sales to Wal-Mart Stores, Inc., and its subsidiaries amounted to approximately 14 percent of consolidated net sales in fiscal 2003. These sales are included primarily in the U.S. retail market. No other customer exceeded ten percent of consolidated 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 is not and, has not, during the Company’s just ended fiscal year, been material.

     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, 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. The Jif brand is marked by its distinct product differentiation (“more fresh roasted peanut taste”) and a consistent advertising campaign (“Choosy Moms Choose Jif”). 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 across all retail channels 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 Company’s brands compete due to a larger private label presence and more volatile commodity pricing. The Company’s fruit spread brands 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 continued growth of alternative store formats, consolidation of retailers, manufacturers, and brokers within the food industry, and changes in business practices, resulting from both 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 Company’s competitive position include well-recognized brands, strong brand management, varied product offerings, 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. In relation to consolidated assets and operating expenses, amounts expensed for research and development in each of the areas and in the aggregate were not material in any of the last three years.

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     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 capital expenditures, earnings, or competitive position of the Company.

     Employees. At April 30, 2003, the Company had approximately 2,775 full-time employees, worldwide. Approximately 760 of these employees, located at six facilities, are covered by union contracts between the Company and the Teamsters. These contracts vary in term depending on the location. The Company believes its relations with its current employees are generally good.

     Segment and Geographic Information. Information concerning reportable segments including international operations for the years 2003, 2002, and 2001 is hereby incorporated by reference from the 2003 Annual Report to Shareholders, on pages 29 through 31, under “Note E: Reportable Segments.”

     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 from the Company’s 2003 Annual Report to Shareholders under “Certain Forward-Looking Statements” on page 17.

     Web site Access to Reports. Access to all SEC filings made by the Company is provided, free of charge, on the Company’s Web site (www.smuckers.com) as soon as reasonably practicable after such reports are electronically filed with the SEC.

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Item 2. Properties

     The table below lists all the Company’s manufacturing and fruit processing facilities. All of the Company’s properties are maintained and updated on a regular basis, and the Company continues to make investment 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, location, which is leased. There are no material performance obligations associated with the properties listed below. The corporate headquarters are located in Orrville, Ohio. The locations indicated by an asterisk are currently expected to close during fiscal 2004 or 2005 as part of the Company’s restructuring plans as described in the Company’s 2003 Annual Report to Shareholders under “Management’s Discussion and Analysis,” on pages 12 through 17. A new Uncrustables manufacturing facility is currently under construction in Scottsville, Kentucky.

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Item 3. Legal Proceedings

     The Company is not a party to any pending legal proceeding that would be considered material. Subsequent to May 1, 2003, the Company has, however, been served with complaints in several class action suits involving its Simply 100% Fruit product. As these cases are only in the very initial stages, and because these complaints seek damages and attorneys’ fees in unspecified amounts, the Company is unable to determine their materiality. The Company believes these suits are without merit and intends to vigorously defend these actions.

Item 4. Submissions of Matters to a Vote of Security Holders

     None.

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PART II Matters" -->

Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters

     The information pertaining to the market for the Company’s common shares and other related shareholder information is hereby incorporated by reference from the Company’s 2003 Annual Report to Shareholders under “Stock Price Data” on page 11.

     The information pertaining to the securities the Company has authorized for issuance under equity compensation plans is hereby incorporated by reference to Item 12 of this report on Form 10-K.

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 from the Company’s 2003 Annual Report to Shareholders under the following captions and page numbers: “Five-Year Summary of Selected Financial Data” on page 10, “Note A: Accounting Policies” on pages 24 through 27 and “Note D: Restructuring” on page 29. Results of Operation" -->

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

     Management’s 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 from the Company’s 2003 Annual Report to Shareholders under “Management’s Discussion and Analysis,” on pages 12 through 17.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Quantitative and qualitative disclosures about market risk are hereby incorporated by reference from the Company’s 2003 Annual Report to Shareholders under “Derivative Financial Instruments and Market Risk” on pages 16 through 17.

Item 8. Financial Statements and Supplementary Data

     Consolidated financial statements of the Company at April 30, 2003 and 2002, and for each of the years in the three-year period ended April 30, 2003, with the report of independent auditors and selected unaudited quarterly financial data, are hereby incorporated by reference from the Company’s 2003 Annual Report to Shareholders under “Summary of Quarterly Results of Operations” on page 11 and beginning with “Management’s Report on Responsibility for Financial Reporting” on page 18 through “Note O: Common Shares” on page 39. The related financial statement schedule is filed as part of this Form 10-K on Schedule II. Financial Disclosure" -->

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

     Information regarding directors and nominees for directorship is incorporated herein by reference from the Company’s definitive Proxy Statement, dated July 8, 2003, for the 2003 Annual Meeting of Shareholders on August 14, 2003, on pages 3 through 5, under the caption “Election of Directors.”

Executive Officers of the Company

     The names, ages as of July 1, 2003, 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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     At its April 2003 Board meeting, the Company’s Board of Directors adopted a revised Policy on Ethics and Conduct which applies to the Company’s principal executive officers and its principal accounting officers. Also at its April 2003 meeting, the Company’s Board of Directors adopted revised charters for each of the Audit, Executive Compensation, and Nominating and Corporate Governance committees and its Corporate Governance Guidelines. Copies of each of these documents is available on the Company’s Web site (www.smuckers.com).

Item 11. Executive Compensation

     Information regarding the compensation of directors and executive officers is incorporated by reference from the Company’s definitive Proxy Statement, dated July 8, 2003, for the 2003 Annual Meeting of Shareholders on August 14, 2003, on page 5 under “Director Compensation”, and beginning with “Report of the Executive Compensation Committee of the Board of Directors” on page 9 and continuing through the compensation tables ending on page 16. Related Stockholder Matters" -->

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 from the Company’s definitive Proxy Statement, dated July 8, 2003, for the 2003 Annual Meeting of Shareholders on August 14, 2003, on pages 18 through 19, under “Ownership of Common Shares.”

     The following table presents information pertaining to the securities the Company has authorized for issuance under equity compensation plans:

Item 13. Certain Relationships and Related Transactions

     Information regarding certain relationships and related transactions is hereby incorporated by reference from the Company’s definitive Proxy Statement dated July 8, 2003, for the 2003 Annual Meeting of Shareholders on August 14, 2003, beginning with “Election of Directors” on page 3 and continuing through “Director Independence” on page 6.

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Item 14. Controls and Procedures

     Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Report, the Company’s principal executive officers and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) 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 Securities and Exchange Commission rules and forms.

     Changes in internal controls. There were no changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 15. Principal Accountants’ Fees and Services

     Information regarding accountants’ fees and services is hereby incorporated by reference from the Company’s definitive Proxy Statement dated July 8, 2003, for the 2003 Annual Meeting of Shareholders on August 14, 2003, on page 20, under “Ratification of Appointment of Independent Auditors.”

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PART IV

Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

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All other required exhibits are either inapplicable to the Company or require no answer.

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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, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

* 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.

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CERTIFICATION

I, Timothy P. Smucker, Co-Chief Executive Officer of the Company certify that:

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CERTIFICATION

I, Richard K. Smucker, Co-Chief Executive Officer and Chief Financial Officer of the Company certify that:

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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

CERTAIN EXHIBITS

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, 2003, 2002, and 2001

(Dollars in Thousands)

     (A)  Uncollectible accounts written off, net of recoveries.

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