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

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” 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, 2005, was $2,444,020,772. As of June 19, 2006, 57,140,448 common shares of The J. M. Smucker Company were issued and outstanding.

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 17, 2006, are incorporated by reference into Part III of this Report, and certain sections of the registrant’s 2006 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.

          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 19 percent of total consolidated Company sales for fiscal 2006.

          The Company has two reportable segments: U.S. retail market and special markets. The Company’s 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, 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, flour and baking ingredients, fruit spreads, baking mixes and ready-to-spread frostings, fruit and vegetable juices, beverages, dessert toppings, syrups, frozen sandwiches, pickles and condiments, and potato side dishes.

          Product sales information for the years 2006, 2005, and 2004 is incorporated herein by reference to information set forth in the Company’s 2006 Annual Report to Shareholders, on pages 36 through 38 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), other food manufacturers, 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, 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. The cost and availability of some of these commodities has fluctuated, and may continue to fluctuate, over time. The Company also uses commodity futures and options to hedge 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, Mary Ellen, Dutch Girl, Martha White, Hungry Jack, Uncrustables, Simply Jif, Golden Temple, Softasilk, Dickinson’s, Crosse & Blackwell, Adams, Laura Scudder’s, Goober, Pet, Magic Shell, andSimple Measures. Major trademarks primarily utilized in the special markets segment include:Smucker’s, Jif, Crisco, Bick’s, Robin Hood, R. W. Knudsen Family, Golden Temple, 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. 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,” “Choosy Dads Choose Jif,” “Great Meals Start Here,” “Start Something Good with Crisco,” “We’ve Got Ice Cream Covered,” “The Spread that Makes Bread Smile,” “For the Hungry Jack in Your House,” “Goodness Gracious, It’s Good,” “A Southern Family Tradition,” 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 pickle 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 18 percent, 16 percent, and 16 percent of net sales in 2006, 2005, and 2004, respectively. These sales are primarily included in the U.S. retail market segment. No other customer exceeded ten percent of net sales during 2006, 2005, and 2004.

          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, 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’sbrands, 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 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 Company’s brands compete due to a larger private label presence and more volatile commodity pricing. The Company’s fruit spread brands, including Smucker’s and Dickinson’s, compete with three major branded lines 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 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 Company’s Hungry Jack brand competes in three primary market categories: pancake mix, potato side dishes, and table syrup. The Company competes primarily with Aunt Jemima, which is marketed by PepsiCo’s Quaker Foods North America segment, in pancake mix

and table syrups, Mrs. Butterworth’s and Log Cabin which is marketed by Pinnacle Food Group, Inc., in table syrups, and Betty Crocker in potato side dishes.

          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, new product introductions, nutritional value, convenience, customer service, advertising, and promotion. Positive factors pertaining to the Company’s competitive position include well-recognized brands, experienced 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 were $10,781,000, $10,397,000, and $7,496,000 in 2006, 2005, and 2004, 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.

          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 SQB’s 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.

          Subsequent to the Company’s initial notification of the investigation by CEPA, the Company has learned that the former owner’s use of the property in manufacturing activities may have contributed to the contamination. Although the former owner is in Chapter 11 bankruptcy status, language contained in its reorganization plan confirmed by the bankruptcy court on April 21, 2006, contains both assumption and indemnity provisions from its parent company that cover both present and future environmental liability, both known and unknown. The Company continues to monitor this situation. The Company continues to conclude that based upon available information, commencement of litigation or assertion of a claim or assessment by CEPA is not currently probable. It is a reasonable possibility that as the current owner of the property, the Company may be named a potentially responsible party along with the former owner of the property. However, as explained above, the Company does not currently believe it will incur a liability related to this matter and has determined that an accrual is not necessary at this time.

          Employees. At April 30, 2006, the Company had approximately 3,500 full-time employees, worldwide. Approximately 38 percent of these employees, located at 11 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.

          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 2006, 2005, and 2004 is incorporated herein by reference to information set forth in the Company’s 2006 Annual Report to Shareholders, on pages 36 through 38, 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 represents 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 2006 Annual Report to Shareholders under the caption “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 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.

          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.

          None.

          The table below lists all of the Company’s manufacturing and processing facilities at April 30, 2006. 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 growth.

          The properties listed below are owned, except for the following properties, which are leased: the West Fargo, North Dakota, facility; the land at the Pt. Colborne, Ontario, facility; and the land at the Montreal, Quebec, bakery mix facility. 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. The West Fargo location is currently expected to close during fiscal 2007, as part of the Company’s restructuring plans as described in the Company’s 2006 Annual Report to Shareholders on pages 35 and 36 under “Note D: Restructuring.”

          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 SQB’s 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.

          Subsequent to the Company’s initial notification of the investigation by CEPA, the Company has learned that the former owner’s use of the property in manufacturing activities may have contributed to the contamination. Although the former owner is in Chapter 11 bankruptcy status, language contained in its reorganization plan confirmed by the bankruptcy court on April 21, 2006, contains both assumption and indemnity provisions from its parent company that cover both present and future environmental liability, both known and unknown. The Company continues to monitor this situation. The Company continues to conclude that based upon available information, commencement of litigation or assertion of a claim or assessment by CEPA is not currently probable. It is a reasonable possibility that as the current owner of the property, the Company may be named a potentially responsible party along with the former owner of the property. However, as explained above, the Company does not currently believe it will incur a liability related to this matter and has determined that an accrual is not necessary at this time.

          None.

          The names, ages as of July 1, 2006, 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.

          (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 2006 Annual Report to Shareholders under the caption “Stock Price Data” on page 10.

          (b) Not applicable.

          (c) Issuer Purchases of Equity Securities

          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 2006 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 33 through 34, “Note C: Discontinued Operations” on page 34, and “Note D: Restructuring” on pages 35 and 36.

          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 2006 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis,” on pages 11 through 19.

          Quantitative and qualitative disclosures about market risk are incorporated herein by reference to the information set forth in the Company’s 2006 Annual Report to Shareholders under the caption “Derivative Financial Instruments and Market Risk” on pages 18 and 19.

          Consolidated financial statements of the Company at April 30, 2006 and 2005, and for each of the years in the three-year period ended April 30, 2006, 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 2006 Annual Report to Shareholders under the caption “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.

          None.

          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, 2006, (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.

          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, 2006, 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 2006 Annual Report to Shareholders under the heading “Report of Management on Internal Control Over Financial Reporting” on page 20, and under the heading “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” on page 21, which reports are incorporated herein by reference.

          None.

          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 of Directors,” “Audit Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 17, 2006. 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).

          The information required by this Item is incorporated by reference to the information set forth under the captions “Executive Compensation,” “Director Compensation,” “Consulting and Non-Compete Arrangements,” and “Compensation Committee Interlocks and Insider Participation” in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 17, 2006.

          The information required by this Item is incorporated by reference to the information set forth under the captions “Beneficial Ownership of Smucker 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 17, 2006.

     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 17, 2006.

          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 17, 2006.

     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.

     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.