A N N U A L R E P O R T
OUR PORTFOLIO OF
LEADING AND
EMERGING BRANDS
WHY WE ARE
WHO WE ARE
A culture of doing the right things and
doing things right…
Of dotting the i’s and crossing the t’s…
A culture of growth—individual and as a company.
A result of living our Basic Beliefs…
Our Commitment to Each Other, to our consumers,
and to our customers.
As we look to the future of unlimited possibilities,
we recognize the principles that are instrumental
to our success:
A culture deeply rooted in our Basic Beliefs,
guideposts for decisions at every level;
A culture that encourages commitment to each other,
clear communication and collaboration;
A culture of appreciation;
A family-sense of sharing in a job well done;
Where every person makes a difference.
#1
#1
#1
#1
JIF
Market Share
Peanut Butter
FOLGERS
Market Share
At-Home
Coffee Brand
SMUCKER'S
Market Share
Fruit Spreads
MILK-BONE
Market Share
Dog Snacks
OUR VISION
Engage, delight, and inspire consumers through trusted food
and beverage brands that bring joy throughout their lives.
A portfolio that combines #1 and leading brands with emerging, on-trend brands
to drive balanced growth.
®
OUR PURPOSE
Helping to bring families together to share
memorable meals and moments.
We have always defined success by more than financial performance.
We believe how we do things is as important as what we do. Our
Purpose aims to articulate why we are in business and the impact we
aspire to have on society.
Being together with the ones we love isn’t just a pleasant way to spend
time—it’s vital to a healthy, happy, fulfilling life. In fact, the more family
and friends spend time with each other, the richer their lives become.
We believe we can help strengthen families through the memorable
meals and moments they share, and we can help make every day a
little more special by nurturing the bonds that bring people together,
as well as people and their pets closer together.
And the stronger families are today, the stronger our society will
be tomorrow.
Quite simply, life tastes better together.
#1
#2
12%
17%
ROBIN HOOD
Market Share
Flour in Canada
DUNKIN'
DONUTS
Market Share
Premium Bagged
Coffee
CAFÉ
BUSTELO
5-Year Compound
Annual Growth Rate
SMUCKER’S
UNCRUSTABLES
15-Year Compound
Annual Growth Rate
At least one of
our products can
be found in 93%
of all U.S. households.
2017 ANNUAL REPORT 1
™ DEAR SHAREHOLDERS AND FRIENDS,
For the past 120 years, The J.M. Smucker Company
has grown and flourished thanks to an unwavering
commitment to making quality products that meet
the evolving needs of our consumers. We recognize
consumers’ eating habits have fundamentally changed
since our founding—and even over the past few years.
We are developing an increasingly sophisticated
view of the link between food and our consumers’
sense of purpose in their lives. These insights are
helping us develop brands and products that align
with the values of today’s consumers, giving us a
clear roadmap for the future.
As consumer preferences are more influential than ever,
fiscal 2017 was a pivotal year of gearing up for future growth
as we continued to transform our business to reflect this
changing landscape while remaining true to our heritage
and Our Purpose of helping to bring families together to share
memorable meals and moments. We’re investing significantly
in product innovation and strengthening capabilities in areas
such as data analytics, e-commerce, and digital marketing to
drive top-line growth while managing costs to fuel that growth.
While top-line softness persisted throughout the fiscal year,
both for our industry and for our business, we achieved
adjusted earnings per share in line with our projections for
the year by accelerating realized synergies related to the Big
Heart Pet Brands acquisition and managing budgets and costs
efficiently. Specific highlights for fiscal 2017 include:
• Achieved a 7 percent increase in adjusted earnings per
share, excluding a prior year gain and noncash tax benefit;
• Grew key on-trend brands such as Smucker’s®
Uncrustables® sandwiches and Café Bustelo® coffee with
both brands experiencing double-digit sales growth;
satisfy cravings, promote health, and convey personal
values. Brands once seen as status symbols now represent
one’s values.
Against this backdrop, we see consumers in the future making
choices that fit their nontraditional, fast-paced schedules;
meet highly specific wellness and functional needs; deliver
convenience and quality in equal measure; and center on
authentic brands with recognizable ingredients. These food
trends diverge sharply from the past, which is why we have
developed a three-year strategic roadmap to capitalize on
new marketplace opportunities and generate sustainable,
profitable growth.
In fiscal 2017, we made great strides in bolstering a new
product pipeline that reflects shifts in consumer preferences
toward convenience, simple ingredients, and snacking. While
more meaningful contributions are expected in the years
ahead, the effectiveness of these initiatives already can be
seen in the near term.
• In U.S. Retail Coffee, Folgers® coffee responded to
consumers’ fondness for simple ingredients with
Folgers Simply Gourmet™, a premium line of coffees
made with all-natural flavors. Meanwhile, Dunkin’
Donuts® K-Cup® pods are satisfying demand for
convenient one-cup servings.
FINANCIAL HIGHLIGHTS
The J. M. Smucker Company
(DOLLARS AND SHARES IN MILLIONS,
EXCEPT PER SHARE DATA)
YEAR ENDED APRIL 30,
2017
2016
Net sales
$7,392.3
$7,811.2
• Returned more than $775 million to our shareholders
in the form of dividends and share repurchases; and
NET INCOME AND NET INCOME
PER COMMON SHARE
• Attained $122 million in incremental synergies for the
year, exceeding our original target, and embarked on
the next phase of our cost-reduction initiatives.
CAPITALIZING ON BRAND STRENGTHS AND CONSUMER TRENDS
We have strong brands that participate in growing categories
including coffee, pet food, peanut butter, and snacking. Today,
our brands and products can be found in 93 percent of U.S.
households, and our priority is to ensure that Smucker products
remain the brands of choice for consumers.
We’re fortifying that position by developing products that
reflect the reality of today’s consumers, who expect more from
food than ever before. In addition to providing nourishment,
food must deliver an enjoyable experience, connect individuals,
Net income
Net income per common share –
assuming dilution
ADJUSTED INCOME AND
EARNINGS PER SHARE (A)
$ 592.3
$ 688.7
$
5.10
$
5.76
Adjusted income
$ 895.9
$ 931.3
Adjusted earnings per share –
assuming dilution
COMMON SHARES
OUTSTANDING AT YEAR END
NUMBER OF EMPLOYEES
$
7.72
$
7.79
113.4
7,140
116.3
6,910
(A) We use non-GAAP financial measures to evaluate our performance. Refer
to “Non-GAAP Measures” in the “Management’s Discussion and Analysis”
section for a reconciliation to the comparable GAAP financial measure.
• In U.S. Retail Consumer Foods, we are leveraging our
Jif® peanut butter brand to build a snacking platform
that caters to consumers’ desire for on-the-go options
and protein-packed foods.
• In U.S. Retail Pet Foods, consumers’ preferences for simple
ingredients extend to the foods they buy for their pets.
New Milk-Bone® Farmer’s Medley™ treats are made with
USA-sourced meat and contain no fillers, corn, or artificial
flavors or preservatives.
A ROADMAP FOR FUTURE GROWTH
At the highest level, our three-year plan is about balancing
a focus on top-line growth with a diligent approach to cost
savings, allowing us to deliver our growth objectives regarding
earnings per share. It includes disproportionate investment
in key growth segments across our portfolio, including our
Jif, Smucker’s Uncrustables, Sahale Snacks®, and Milk-Bone
brands, and all of our coffee brands.
In e-commerce, we are redefining every aspect of our approach,
including organization, capabilities, and investment. With pet
food and pet snacks and coffee leading the way, our target
is to generate 5 percent of net sales in fiscal 2020 through
e-commerce. Already, subscription order models are proving
highly successful in this distribution channel; online sales of
Natural Balance® premium pet food grew roughly 60 percent
in fiscal 2017.
Other facets of the strategic plan include increasing capital
expenditures to add new manufacturing capacity, improving
flexibility and productivity at several existing manufacturing
facilities, and enhancing our information technology. Recently,
we broke ground on a new Smucker’s Uncrustables sandwiches
manufacturing facility in Longmont, Colorado. When complete
in 2020, this plant will provide the capacity to double sales
of what is today a $220 million business. We also plan key
capital improvements at our coffee facilities in New Orleans,
Louisiana, and peanut butter plant in Lexington, Kentucky,
that will improve efficiencies, lower costs, and enhance quality.
Finally, we expect acquisitions to play an ongoing role in our
future growth. As demonstrated by our recently announced
agreement to acquire the Wesson® cooking oil brand, these
transactions provide opportunities to add top- and bottom-
line growth where we benefit from our existing customers
and channels, broaden participation in existing categories,
and realize synergies in our supply chain.
BALANCING INVESTMENTS WITH COST MANAGEMENT
To succeed, this growth journey needs fuel, which is being
created in the form of ongoing cost management. We delivered
over $120 million in incremental synergies associated with
the Big Heart Pet Brands acquisition in fiscal 2017, exceeding
our $100 million goal. This brings cumulative synergies
achieved to date to approximately $160 million out of the
total $200 million we expect to achieve by fiscal 2018. We
have targeted another $250 million in cost reductions by fiscal
2020 from our companywide cost management program.
This will result in $450 million in total annual synergy and
cost reductions by that year.
Savings under this $250 million cost management program
are expected to come from previously announced plant
consolidations, accelerated operational efficiencies across
the entire manufacturing network, organization optimization,
revenue growth management, SKU rationalization, and a zero-
based budgeting program. We believe that this strategy will
capture the growth opportunities at hand and continue our
historical track record of strong value creation, which has enabled
us to return more than $3.1 billion to shareholders over the
past five fiscal years through dividends and share repurchases.
A LONG-TERM VIEW
As important as our new roadmap is for charting our course
for the next three years, we will continue to pay attention to
the factors that have guided us for the past century: a focus
on the consumer, strong relationships with all our constituents,
and adherence to our culture and long-standing Basic Beliefs
as we “Execute for Today, Build for Tomorrow.” This message
encapsulates our plans for the near future as we expect to
deliver on three key financial objectives:
• Achieve earnings per share growth in line with our
stated long-term objective;
• Grow the top line, both organically and through
acquisitions; and
• Achieve significant cost savings that will provide fuel for
investments in growth and support the bottom line.
Although our industry looks very different than it did a
generation ago, we believe companies that embrace and
address today’s accelerating pace of change can and will
thrive. In this environment, our strong portfolio of leading
and emerging brands continues to serve us well, providing
the flexibility required to continuously adapt to changes in
the marketplace. We are thankful for our employees, who bring
these beliefs to life every day, and to you, our shareholders,
for your continued support and confidence in our Company.
Tim Smucker
Richard Smucker
Mark Smucker
June 19, 2017
2 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 3
U.S. RETAIL
COFFEE
4 THE J. M. SMUCKER COMPANY
Led by three strong brands, Folgers,
Dunkin’ Donuts, and Café Bustelo,
Smucker is the leader in the U.S.
at-home retail coffee category,
offering products across a variety
of price points while participating in
all key segments of at-home coffee,
including mainstream roast and
ground, one-cup, premium, instant,
and ready-to-drink. We continue
to deliver classic favorites while
bringing new coffee blends and
platforms to market.
2017 ANNUAL REPORT 5
C A T E G O R Y L E A D E R S H I P T H R O U G H
T R A D I T I O N A N D I N N O V A T I O N
I N NOVAT I V E N E W PRODUC T S F ROM ICON IC B R A N DS K EEP
AM E R I C A’ S COF F EE CON SU M ER S COM I NG BACK FOR MOR E .
A
s the at-home coffee category approaches $10 billion,
Smucker remains the category leader with a 26 percent
market share, led by a trio of brands—Folgers, Dunkin’
Donuts, and Café Bustelo. In fiscal 2017, our U.S.
Retail Coffee segment net sales totaled $2.1 billion, while
we achieved segment profit of $682 million.
Folgers coffee remains consumers’ favorite at-home coffee
brand in mainstream roast and ground, the largest coffee
segment by retail sales volume. In the past year, our market
position in the mainstream coffee segment was 55 percent,
more than twice that of the next-largest competitor.
Innovation will play a key role in the future of the Folgers
brand, and we are utilizing data-driven insights to help
shape future brand investments. Our research shows
adult consumers of all ages are inspired by the heritage
and authenticity of Folgers coffee, and we are using these
insights to power further product innovations and to connect
with new and core Folgers coffee consumers. For example, this
past year we introduced in roast and ground and in K-Cup®
pods Folgers Coffeehouse Blend,
a bolder brew that launched to
positive reviews. This summer we
are launching Folgers Simply
Gourmet, a premium coffee line
featuring all-natural flavors.
We are utilizing
data-driven insights
to help shape future
brand investments.
29% SEGMENT AS A
PERCENTAGE OF
COMPANY NET SALES
Dunkin’ Donuts coffee generated approximately $500 million
in net sales in fiscal 2017, including Dunkin’ Donuts K-Cup®
pods. The most successful product launch in our Company’s
history, Dunkin’ Donuts K-Cup® pods exceeded its strong
inaugural year performance and achieved the #2 ranking by
IRI in its 2016 Food and Beverage New Product Pacesetters™
report. Dunkin’ Donuts Original Blend is now the top-selling
item among all K-Cup® pods along with retaining its position as
the #1 bagged coffee item in the premium category. The overall
premium segment of at-home coffee represents $2.3 billion in
annual retail sales, and Dunkin’ Donuts coffee is well-positioned
in the category as the #2 premium coffee brand. This past
year, we expanded the brand’s roast and ground offerings,
including popular seasonal flavors, to satisfy variety-seeking
consumers and are investing in new platforms to extend the
Dunkin’ Donuts coffee brand. To meet accelerating demand
for cold brew coffee, we are introducing Dunkin’ Donuts Cold
Brew coffee packs, a do-it-yourself kit that matches the cold
brew experience offered at coffee shops with the comfort
and convenience of being at home. Additional seasonal
offerings of Dunkin’ Donuts Cold Brew coffee packs are
expected to hit the market following the initial launch.
The Café Bustelo brand continues to resonate strongly with
its core Hispanic consumer base, while also attracting
millennial coffee drinkers, who appreciate the brand’s
authentic heritage. Café Bustelo coffee net sales have grown
at a 12 percent compound annual growth rate over the past
five fiscal years, resulting in approximately $135 million in
companywide net sales during fiscal 2017. We expect sales to
double within the next three years as we focus on expanding
distribution for the brand’s roast and ground and K-Cup®
pod offerings, as well as for Bustelo Cool®, a ready-to-drink
coffee product.
6 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 7
With a portfolio of iconic brands that
families love, it’s no surprise more than
90 percent of American household
pantries include a Smucker product.
Our fruit spreads, nut butters, baking
mixes and frostings, shortening and
oils, natural and organic beverages,
organic grains, and fruit and nut
mixes enjoy the trust of consumers
across generations.
U.S. RETAIL
CONSUMER FOODS
8 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 9
S A T I S F Y I N G C H A N G I N G
C O N S U M E R P R E F E R E N C E S
O FFER I NG A VAR IE T Y OF QUALI T Y PRODUC T S FROM T RUS T E D L E ADING
AN D EMERGING BR ANDS , W E’R E MEE T ING T HE SNACK ING AND ME A LT I M E
N EED S OF TODAY ’S CONSUMER S .
S
nacking and natural and organic foods—two distinct
but related trends—are key areas of focus in U.S. Retail
Consumer Foods. We expect to achieve growth through
innovation in current and new categories with brands
consumers know and love. In fiscal 2017, we expanded the
reach of our Smucker’s and Jif brands and saw strong sales for
on-trend offerings such as Smucker’s Uncrustables sandwiches
and Sahale Snacks fruit and nut mixes. Net sales for U.S.
Retail Consumer Foods totaled $2.1 billion, with segment
profit at $458 million.
Snacking products accounted for approximately $310 million
in 2017 net sales companywide, having grown at an
annualized rate of 15 percent since 2012 and reflecting a
purposeful shift toward products that meet consumers’
needs for convenient foods. In line with this trend, Smucker’s
Uncrustables sandwiches experienced double-digit sales
increases in recent years and is well-positioned for growth.
We recently removed high fructose corn syrup from all
our Smucker’s Uncrustables sandwiches and certified the
entire line NSF Non-GMO True North™ by NSF International
in response to consumer preferences.
Snacking is also a driving trend for our Jif peanut butter
brand, which enjoys a 39 percent share in the U.S. peanut
butter market. Increasingly viewed as a delicious and
convenient source of protein, Jif peanut butter has proven
to be a strong snacking platform, including both Jif To Go®
peanut butter single-serve cups and Jif snack bars. Jif
snack bars gained retail sales in fiscal 2017 through
ongoing marketing investments and the introduction
of new bar varieties.
In the baking aisle, our frosting innovation leadership
continued with the launch of Pillsbury™ Filled Pastry Bags,
ready-to-use bags that make frosting fun and approachable,
and our Crisco® brand expanded its offerings with Crisco
Organic Coconut Oil Unrefined, which retains the distinct
coconut aroma and flavor.
Since acquiring the Sahale Snacks brand, we have increased
distribution, introduced smaller pack sizes, and rolled
out new snack items in unique flavors such as Korean
BBQ Almonds glazed mix and a new line of snack bars
with sweet and savory flavor combinations. As a result,
brand sales are up, with further growth anticipated
through increased investments in marketing, innovation,
and distribution.
Our natural and organic brands also provide a strong
platform for growth. We enjoy #1 positions in natural
peanut butter, organic peanut butter, natural fruit spreads,
and natural shelf-stable juice.
Building on our natural juice category leadership, we are
expanding distribution of the Santa Cruz Organic™ Agua
Fresca line of lightly sweetened organic fruit juices into
traditional grocery outlets. In addition, through our licensing
agreement with Numi Inc., we launched a line of ready-to-
drink organic teas in five flavors.
28% SEGMENT AS A
PERCENTAGE OF
COMPANY NET SALES
10 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 11
U.S. RETAIL
PET FOODS
A $30 billion category, pet food and pet
snacks is the largest and one of the fastest-
growing categories in which we participate.
Trends in pet foods mirror those in consumer
foods, with current growth driven by demand
for snacks and premium products made with
simple ingredients. With a portfolio that includes
Meow Mix®, Milk-Bone, Natural Balance, Nature’s
Recipe®, and Kibbles ‘n Bits®, we hold the #1
market share position in dog snacks, the #2
position in dry cat food, and a strong presence
in premium pet food.
2017 ANNUAL REPORT 13
P R O V I D I N G Q U A L I T Y P R O D U C T S
F O R P E T S I N T H E F A M I L Y
OU R PE T FOOD AND PE T S NACK S B R AN D S A R E P OI S E D
FO R S T E ADY GROW T H.
W
e’re putting into place a series of refreshed
strategic initiatives to improve our sales and
maintain a leadership position in pet food
and pet snacks. We’re focused on long-term brand
building and reprioritizing marketing to support both core
and emerging brands, optimizing our supply chain, and
investing in innovation, including a new $25 million research
and development facility on our corporate campus, which
will open in June 2017.
For fiscal 2017, net sales for pet food and pet snacks totaled
$2.1 billion, while segment profit was $481 million. Innovation
is a key focus area, particularly within the dog snacks category,
which generates some of the highest margins in our Company
portfolio. Driven by the iconic Milk-Bone brand, we are a
clear leader in this $2.3 billion category with a 38 percent
market share. Following the successful introduction of Milk-Bone
Brushing Chews® dental treats, we recently launched Farmer’s
Medley dog treats under the Milk-Bone brand. Meeting pet
owners’ needs for premium ingredients, these biscuits are
made with USA-sourced meat and contain no fillers, corn, or
artificial flavors or preservatives.
We also have a strong snacking
portfolio beyond the Milk-Bone
brand, as we reinforce our
position in the soft and chewy
dog snacks space with our
Pup-Peroni® brand through
innovation and brand building.
We’re focused on long-
term brand building and
reprioritizing marketing
to support both core
and emerging brands.
In fiscal 2017, we expanded distribution for our premium pet
food portfolio by introducing Nature’s Recipe into grocery and
mass merchandisers. Nature’s Recipe, which was previously
sold exclusively within the pet specialty channel, is uniquely
positioned to meet pet parents’ increasing desire for natural
and wellness offerings at accessible price points. Offering a
premium brand in traditional retail is a key component of a
broader strategy to grow our overall dog food portfolio by
providing a strong presence in the value, mainstream, and
premium segments of the grocery and mass channels.
Similarly, we continue to see strong long-term growth
potential for Natural Balance, our super premium offering
exclusive to the pet specialty and e-commerce channels.
We have planned a packaging refresh to enhance on-shelf
positioning for this brand and are introducing a high-protein
line of L.I.D. Limited Ingredient Diets® items. We are also
focused on customer-specific strategies to drive in-store
traffic and further accelerate e-commerce sales.
Finally, we plan to build upon our #2 position in the cat food
and cat snacks segments, led by the Meow Mix brand. With
a view toward innovating across the category, we recently
launched Meow Mix Bistro™ dry cat food inspired by culinary
recipes and Meow Mix Paté wet varieties made with real
meat ingredients. Within cat treats, we successfully launched
Meow Mix Irresistibles®, made with real meat and no artificial
flavors, and introduced Meow Mix Brushing Bites® dental
cat treats designed to help control plaque and tartar.
29% SEGMENT AS A
PERCENTAGE OF
COMPANY NET SALES
14 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 15
Our International and Foodservice
business includes domestic sales
outside U.S. retail channels, and
foreign sales primarily in Canada,
Mexico, and the Caribbean.
We are a preferred supplier of
food and beverages to North
American foodservice operators,
including casual and fine dining
establishments, schools and
universities, hospitals, and
business and industry
customers.
INTERNATIONAL
AND FOODSERVICE
16 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 17
C O N V E N I E N C E A N D Q U A L I T Y A R O U N D
T H E W O R L D A N D A W A Y F R O M H O M E
INTERNATIONAL AND FOODSERV ICE BUSINESS PROV IDES CONSUMER S
WITH ICONIC BR ANDS THE Y KNOW AND TRUST.
O
ur International and Foodservice business reported in
fiscal 2017 net sales totaling $1.1 billion and segment
profit of $185 million. Results were driven by growth
across our foodservice categories, the launch of
new products in Canada, and ongoing growth of our
export business.
Net sales in Canada remained steady in fiscal 2017. With
the #1 branded position in six center-of-the-store categories,
our efforts in fiscal 2017 focused on growing our brands in
new and existing categories. We introduced one of our most
iconic brands, Jif peanut butter, to Canadian retail outlets.
Canadians are among the highest per capita consumers of
peanut butter in the world and are already familiar with
the Jif brand through travel to the United States and our
Canadian foodservice business. Backed by a robust marketing
campaign, the launch has been well-received by consumers
and retail customers.
Our strong baking business in Canada maintains leadership
positions in flour, shortening, and canned milk. In coffee, net
sales increased for our Folgers roast and ground portfolio,
and we launched Folgers K-Cup® pods in larger count sizes.
Lastly we grew our pet foods business in Canada with product
innovation, advertising, and seasonal merchandising.
Through our international export business, Smucker brands
are distributed in 90 countries outside North America. In
fiscal 2017, both sales and segment profit increased for this
business driven by fruit spreads, peanut butter, and coffee
primarily in Europe, the Middle East, and Latin America.
Our foodservice business, which operates across the
majority of commercial and noncommercial segments, is
growing at approximately twice the rate of the industry by
offering a strong portfolio of products that consumers trust
and use in their own homes. Accomplishments in fiscal
2017 included the introduction of Smucker’s Natural fruit
spreads in new packaging in the quick-service restaurant
channel and continued growth in our existing portion-
control business. Additionally, distribution gains were
achieved in strategic categories with our Sahale Snacks
fruit and nut mixes and Jif peanut butter.
Our K–12 school portfolio includes Smucker’s Uncrustables
sandwiches and Jif peanut butter, two brands students know
and trust. Sales of Smucker’s Uncrustables sandwiches grew
18 percent in foodservice channels in fiscal 2017, representing
a full year since the brand’s reentry into the United States
Department of Agriculture school foodservice program.
In foodservice coffee, we are launching Café Bustelo “Sabor
Latino Served Here,” a specialty coffee program targeting
colleges and universities. In addition, the introduction of
innovative new coffee equipment will further enable our
specialty coffee proposition in offices and other channels.
14% SEGMENT AS A
PERCENTAGE OF
COMPANY NET SALES
18 THE J. M. SMUCKER COMPANY
2017 ANNUAL REPORT 19
SUSTAINABILITY
AT SMUCKER
CREATING A BETTER TOMORROW BY FOCUSING ON:
• Preserving our culture;
• Ensuring our long-term Economic viability;
• Driving positive Environmental impact; and
• Being Socially responsible.
At Smucker, we are proud to advance our business goals without sacrificing our respect for the environment and support for the
communities we serve. Over the past year, we have made substantial progress in areas such as responsible sourcing, sustainable
agriculture, environmental responsibility, and community impact. Here are some of our achievements:
32 MILLION
Gallons of water saved
10%
of total retail coffee purchased
from certified sources
14,000+
Coffee farmers have benefited from
our work with the Better Coffee
Harvest Project and the
Hanns R. Neumann Foundation
91.6%
of total waste
diverted from landfill
YEAR 2
of Pollinator Partnership
“Monarch Wings Across
Ohio” Program
7
LEED®-certified
facilities
40%
Reduction in trucks
delivering Smucker’s® Magic
Shell® due to reduction
in package weight
100%
of direct palm oil purchases were
from responsible and certified
sustainable sources
1,300 HECTARES
of quinoa-growing land certified
as USDA Organic through our
partner, Fundación Valles
10,000,000+
Meals provided to people and
pets through products donated
Please view our 2017 Corporate Responsibility Report at corporateresponsibility.jmsmucker.com.
20 THE J. M. SMUCKER COMPANY
GREEK
GRAIN
AND
QUINOA
SALAD
CHEESY
TACO
PIZZA
CASHEW
CHICK-
EN WITH
BROWN
RICE
TRIPLE
BERRY
BAKED
BRIE
BACON
PANCAKE
STICKS
RED,
WHITE &
BLUEBERRY
TRIFLE
CASHEW CHICKEN
WITH BROWN RICE
GREEK GRAIN AND
QUINOA SALAD
INGREDIENTS
1 cup chicken broth
1/3 cup sliced green onion
¼ cup Jif® Creamy
Cashew Butter
¼ cup soy sauce
3 tablespoons honey
2 teaspoons grated
ginger root
2 tablespoons Crisco®
Pure Canola Oil
1¼ to 1½ pounds boneless
skinless chicken breasts,
cut into 1-inch cubes
½ cup chopped red pepper
2 cups hot cooked
brown rice
¼ cup chopped cashews
TRIPLE BERRY
BAKED BRIE
INGREDIENTS
1 sheet frozen puff
pastry, thawed
1/3 cup Smucker’s®
Orchard’s Finest®
Northwest Triple
Berry Preserves
8 ounces round baby
wheel brie cheese
¼ cup chopped
hazelnuts
or pecans
1 large egg
1 tablespoon water
Assorted crackers,
pear slices and/or
apple slices
PREP TIME: 10 min.
COOK TIME: 10 min.
YIELD: 4 servings
DIRECTIONS
1. COMBINE broth, green onion, cashew butter,
soy sauce, honey and ginger root in medium
bowl.
2. HEAT oil in large skillet over medium high
heat. Add chicken and red pepper. Cook 3
to 5 minutes until chicken is browned. Add
cashew butter mixture to skillet. Bring to a
boil, stirring constantly. Remove from heat.
INGREDIENTS
1 cup water
½ cup truRoots®
Sprouted Quinoa
& Ancient Grain
Medley
½ cup Greek
vinaigrette dressing
2 cups diced
cucumber
1 cup grape or cherry
tomatoes, halved
3. PLACE rice on serving platter. Spoon chicken
½ cup crumbled feta
mixture over rice. Top with cashews.
cheese
PREP TIME: 10 min.
COOK TIME: 25 min.
YIELD: 4 (3/4 cup)
servings
DIRECTIONS
1. BRING water to a boil in small saucepan.
Stir in quinoa & grain medley. Cover with
tight-fitting lid and cook over low heat 20 to
25 minutes or until water is absorbed and
medley is tender.
2. COMBINE medley and salad dressing in
medium bowl. Stir until blended.
3. STIR in cucumber and tomatoes. Sprinkle
with feta cheese. Cover and chill until ready
to serve.
©/® The J. M. Smucker Company
©/® The J. M. Smucker Company
PREP TIME: 20 min.
COOK TIME: 25 min.
YIELD: 12 servings
DIRECTIONS
1. HEAT oven to 400°F. Unfold puff pastry on a
lightly floured surface. Roll gently to seal any
cracks in pastry. Spoon preserves onto center
of pastry. Place cheese on top of preserves.
Sprinkle evenly with nuts. Fold pastry up over
the cheese to cover. Trim excess pastry and
press to seal seams. Reserve pastry scraps.
2. WHISK egg and water in small bowl. Brush
seams with egg mixture. Place seam-side
down on baking sheet. Cut pastry scraps
into decorative shapes and arrange on top,
if desired. Brush with egg mixture.
3. BAKE 25 minutes or until golden brown.
Let stand 20 minutes before cutting.
Serve with crackers and sliced fruit.
CHEESY TACO
PIZZA
INGREDIENTS
1 package Martha
White® Deep Pan
Pizza Crust Mix
Additional ingredients
to prepare crust
mix per package
instructions
½ pound ground beef
½ cup water
2 tablespoons taco
seasoning mix
½ cup tomato salsa
¾ cup refried beans
1 (8 oz.) package
shredded Mexican
cheese blend
Various toppings for
garnish
PREP TIME: 20 min.
COOK TIME: 20 min.
YIELD: 8 servings
DIRECTIONS
1. PREPARE crust mix according to package
instructions through step 4, except use a
12-inch round pizza pan instead of a cake
or deep-dish pan.
2. BROWN ground beef in large skillet. Add
water and taco seasoning mix. Simmer
3 minutes or until almost dry, stirring
occasionally.
3. STIR salsa into beans until blended. Spread
over partially baked crust. Top with beef
mixture and cheese. Bake 9 to 12 minutes or
until golden brown. Garnish as desired.
©/® The J. M. Smucker Company
©/® The J. M. Smucker Company
RED, WHITE &
BLUEBERRY TRIFLE
BACON PANCAKE
STICKS
INGREDIENTS
1 package PillsburyTM
Purely Simple®
White Cake and
Cupcake Mix
Additional ingredients
to prepare cake
mix per package
instructions
2 cups cold heavy
cream
1 package PillsburyTM
Purely Simple®
Buttercream
Frosting Mix
2 cups sliced fresh
strawberries, divided
2 cups fresh blueberries,
divided
PREP TIME: 25 min.
COOK TIME: 35 min.
DIRECTIONS
YIELD: 15 servings
1. PREPARE cake mix according to package
instructions using butter, milk and eggs. Bake
in 2 (8- or 9-inch) round baking pans according
to package instructions. Cool completely.
Cut 1 cake into 1-inch cubes. Wrap remaining
cake and reserve for another use.
2. BEAT cream in large bowl with mixer on high
speed until soft peaks form. Add frosting mix
to bowl. Beat on low speed until moistened.
Beat on high speed until stiff peaks form.
3. PLACE half of cake cubes in 3-quart trifle dish or
glass serving bowl. Top with 1 cup strawberries
and 1 cup blueberries. Spread half of whipped
cream mixture over berry layer. Repeat all layers
using remaining cake cubes, berries and
whipped cream mixture. Garnish as desired.
INGREDIENTS
Crisco® Original
No-Stick Cooking Spray
2 cups Hungry Jack®
Complete Buttermilk
Pancake & Waffle Mix
(Just Add Water)
11/3 cups water
12 strips cooked bacon
cut in half
Hungry Jack®
Original Syrup
PREP TIME: 10 min.
COOK TIME: 25 min.
YIELD: 24 sticks
DIRECTIONS
1. COAT griddle or large skillet with no-stick
cooking spray. Heat over medium heat
(375°F). Whisk pancake mix and water in
large bowl until smooth. Let stand 3 minutes.
2. PLACE batter in liquid measuring cup. Pour
batter into a 4-inch oval shape a little longer
and wider than bacon slice. Press slice of
bacon in the center.
3. COOK until edges are dry, about 1 to 1½
minutes. Turn; cook an additional
1 minute or until golden brown. Repeat to
make remaining sticks. Serve with syrup.
©/® The J. M. Smucker Company
©/® The J. M. Smucker Company
2017 FINANCIAL REVIEW
The J. M. Smucker Company
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the five years in the period ended April 30, 2017. The selected financial data should
be read in conjunction with the “Results of Operations” and “Liquidity and Capital Resources” sections of “Management’s Discussion and Analysis”
and the consolidated financial statements and notes thereto.
(Dollars and shares in millions, except per share data)
Statements of Income:
Net sales
Gross profit
% of net sales
Operating income
% of net sales
Net income
Financial Position:
Cash and cash equivalents
Total assets
Total debt
Shareholders’ equity
Liquidity:
Net cash provided by operating activities
Capital expenditures
Free cash flow (A)
Quarterly dividends paid
Purchase of treasury shares
EBITDA (as adjusted) (A)
Share Data:
Weighted-average shares outstanding
Weighted-average shares outstanding – assuming dilution
Dividends declared per common share
Earnings per Common Share:
Net income
Net income – assuming dilution
Other Non-GAAP Measures: (A)
Adjusted gross profit
% of net sales
Adjusted operating income
% of net sales
Adjusted income and earnings per share:
Adjusted income
Adjusted earnings per share – assuming dilution
2017
2016
2015
2014
2013
Year Ended April 30,
$ 7,392.3
$ 2,835.3
$ 7,811.2
$ 2,967.8
$ 5,692.7
$ 1,968.7
38.4%
38.0%
$ 1,031.5
$ 1,145.3
14.0%
592.3
$
14.7%
688.7
$
34.6%
772.0
13.6%
344.9
$
$
$ 5,610.6
$ 2,031.0
$ 5,897.7
$ 2,027.6
36.2%
34.4%
$ 919.0
$ 910.4
16.4%
15.4%
$ 565.2
$ 544.2
$
166.8
15,639.7
5,398.5
6,850.2
$ 1,059.0
192.4
866.6
339.3
437.6
1,593.7
116.0
116.1
3.00
5.11
5.10
$
$
$
109.8
15,984.1
5,430.0
7,008.5
$ 1,461.0
201.4
1,259.6
316.6
441.1
1,579.1
119.4
119.5
2.68
5.77
5.76
$
$
$
125.6
16,806.3
6,170.9
7,086.9
$
$
$
739.1
247.7
491.4
254.0
24.3
871.3
103.7
103.7
2.56
3.33
3.33
$ 153.5
9,041.4
2,216.3
5,029.6
$ 863.3
279.5
583.8
238.0
508.5
1,185.5
104.3
104.3
2.32
5.42
5.42
$
$
$ 256.4
9,010.7
2,010.1
5,148.8
$ 858.7
206.5
652.2
222.8
364.2
1,161.6
108.8
108.9
2.08
5.00
5.00
$
$
$ 2,868.2
$ 2,968.0
$ 1,999.4
$ 2,035.1
$ 2,032.5
38.8%
38.0%
$ 1,481.8
$ 1,489.8
20.0%
19.1%
$
$
895.9
7.72
$
$
931.3
7.79
$
$
$
35.1%
970.2
17.0%
36.3%
34.5%
$ 1,047.6
$ 1,061.6
18.7%
18.0%
475.6
4.59
$ 650.8
6.24
$
$ 644.9
5.92
$
(A) We use non-GAAP financial measures to evaluate our performance. Refer to “Non-GAAP Measures” in the “Management’s Discussion and Analysis” section for a
reconciliation to the comparable GAAP financial measure.
2017 ANNUAL REPORT 21
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
The J. M. Smucker Company
The following is a summary of unaudited quarterly results of operations for the years ended April 30, 2017 and 2016.
(Dollars in millions, except per share data)
Quarter Ended
Net Sales Gross Profit Net Income
Net Income per
Common Share
Net Income per
Common Share –
Assuming Dilution
2017
2016
July 31, 2016
October 31, 2016
January 31, 2017
April 30, 2017
July 31, 2015
October 31, 2015
January 31, 2016
April 30, 2016
$1,815.8
1,913.9
1,878.8
1,783.8
$1,952.0
2,077.7
1,973.9
1,807.6
$722.7
742.9
722.9
646.8
$728.7
787.3
763.8
688.0
$170.0
177.3
134.6
110.4
$136.4
176.0
185.3
191.0
$1.46
1.52
1.16
0.96
$1.14
1.47
1.55
1.61
$1.46
1.52
1.16
0.96
$1.14
1.47
1.55
1.61
Annual net income per common share may not equal the sum of the individual quarters due to differences in the average number of shares
outstanding during the respective periods, primarily due to share repurchases.
STOCK PRICE DATA
Our common shares are listed on the New York Stock Exchange – ticker symbol SJM. The table below presents the high and low market
prices for the shares and the quarterly dividends declared. There were approximately 311,400 shareholders of record as of June 12, 2017,
of which approximately 41,400 were registered holders of common shares.
2017
2016
Quarter Ended
July 31, 2016
October 31, 2016
January 31, 2017
April 30, 2017
July 31, 2015
October 31, 2015
January 31, 2016
April 30, 2016
High
$154.97
157.31
136.13
143.68
$120.65
120.44
128.43
132.64
Low
Dividends
$125.67
128.75
122.05
125.77
$104.81
104.30
111.01
121.79
$0.75
0.75
0.75
0.75
$0.67
0.67
0.67
0.67
22 THE J. M. SMUCKER COMPANY
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
SHAREHOLDER RETURN
The J. M. Smucker Company
The J. M. Smucker Company
S&P Packaged Foods & Meats
S&P 500
2012
$100.00
100.00
100.00
2013
$132.90
128.03
116.89
April 30,
2014
$127.19
140.89
140.78
2015
$156.23
162.00
159.05
2016
$175.06
188.77
160.97
2017
$178.42
199.67
189.81
The above graph compares the cumulative total shareholder return for the five years ended April 30, 2017, for our common shares, the S&P
Packaged Foods & Meats Index, and the S&P 500 Index. These figures assume all dividends are reinvested when received and are based on
$100 invested in our common shares and the referenced index funds on April 30, 2012.
Copyright © 2017 Standard & Poor’s, a division of S&P Global. All rights reserved.
www.researchdatagroup.com/standards-poors/
2017 ANNUAL REPORT 23
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
(Dollars in millions, unless otherwise noted, except per share data)
COMPANY BACKGROUND
For 120 years, The J. M. Smucker Company (“Company,” “we,”
“us,” or “our”) headquartered in Orrville, Ohio, has been
committed to offering consumers quality products that bring
families together to share memorable meals and moments. Today,
we are a leading marketer and manufacturer of consumer food and
beverage products and pet food and pet snacks in North America.
In consumer foods and beverages, our brands include Smucker’s®,
Folgers®, Jif ®, Dunkin’ Donuts®, Crisco®, Pillsbury®, R.W.
Knudsen Family®, Hungry Jack®, Café Bustelo®, Martha White®,
truRoots®, Sahale Snacks®, Robin Hood®, and Bick’s®. In pet food
and pet snacks, our brands include Meow Mix®, Milk-Bone®,
Kibbles ’n Bits®, Natural Balance®, and 9Lives®.
We have three reportable segments: U.S. Retail Coffee, U.S. Retail
Consumer Foods, and U.S. Retail Pet Foods. The U.S. retail
market segments in total comprised over 85 percent of net sales in
2017 and represent a major portion of our strategic focus – the sale
of branded food and beverage products with leadership positions to
consumers through retail outlets in North America. In the U.S.
retail market segments, our products are sold primarily to food
retailers, food wholesalers, drug stores, club stores, mass
merchandisers, discount and dollar stores, military commissaries,
natural foods stores and distributors, pet specialty stores, and
online retailers. Within our segment results, International and
Foodservice represents a combination of the strategic business
areas not included in the U.S. retail market segments. The products
included in International and Foodservice are distributed
domestically and in foreign countries through retail channels and
foodservice distributors and operators (e.g., restaurants, lodging,
schools and universities, health care operators).
STRATEGIC OVERVIEW
We remain rooted in our Basic Beliefs of Quality, People, Ethics,
Growth, and Independence established by our founder and
namesake, Jerome Smucker, more than a century ago. Today, these
Basic Beliefs are the core of our unique corporate culture and serve
as a foundation for decision-making and actions. We have been led
by five generations of family leadership, having had only six chief
executive officers in 120 years. This continuity of management and
thought extends to the broader leadership team that embodies the
values and embraces the business practices that have contributed to
our consistent growth.
Our strategic vision is to own and market a portfolio of food and
beverage brands that combines number one and leading brands
with emerging, on-trend brands to drive balanced, long-term
growth, primarily in North America.
Our strategic long-term growth objectives are to increase net sales
by 3 percent and earnings per share, measured on a non-GAAP
basis, by 8 percent annually on average. We expect organic growth,
including new products, to drive much of our top-line growth,
while the contribution from acquisitions will vary from year
to year.
24 THE J. M. SMUCKER COMPANY
Net sales has increased at a compound annual growth rate of
6 percent over the past five years, driven by the acquisition of Big
Heart Pet Brands (“Big Heart”), while income per diluted share
excluding non-GAAP adjustments (“adjusted earnings per share”)
has increased at a rate of 8 percent over the same period. Our non-
GAAP adjustments include amortization expense and impairment
charges related to intangible assets, merger and integration and
restructuring costs, and unallocated gains and losses on commodity
and foreign currency exchange derivatives, which reflect the
changes in fair value of these derivative contracts.
During 2015, we acquired Big Heart, a leading producer,
distributor, and marketer of premium-quality, branded pet food and
pet snacks in the U.S. This transformational acquisition provided
an immediate and significant presence in the large and growing pet
food and pet snacks categories, increased our center-of-the-store
presence with consumers and retailers, and added new customers
in the pet specialty channel.
Net cash provided by operating activities has increased at a
compound annual growth rate of 8 percent over the past five years.
Our cash deployment strategy is to balance reinvesting in our
business through acquisitions and capital expenditures with
returning cash to our shareholders through the payment of
dividends and share repurchases, while also maintaining our focus
on debt repayment.
RESULTS OF OPERATIONS
All comparisons presented in this discussion and analysis are to the
corresponding period of the prior year, unless otherwise noted. On
March 23, 2015, we completed the acquisition of Big Heart, and on
September 2, 2014, we completed the acquisition of Sahale
Snacks, Inc. (“Sahale”). These transactions were accounted for as
business combinations, and the operations of each business are
included in our consolidated financial statements from the date of
acquisition. Due to the timing of the closing of the Big Heart
transaction during the fourth quarter of 2015, approximately
11 months of incremental Big Heart operations are included in
2016 results.
The acquisition of Big Heart was a cash and stock transaction
valued at $5.9 billion, which included the issuance of 17.9 million
shares of our common stock to the shareholders of Blue
Acquisition Group, Inc., Big Heart’s parent company. After the
closing of the transaction, we had approximately 120.0 million
common shares outstanding. We assumed $2.6 billion in debt that
we repaid at closing and paid an additional $1.2 billion in cash, net
of a working capital adjustment. As part of the transaction, new
debt of $5.5 billion was borrowed, as discussed in Note 8: Debt
and Financing Arrangements.
Total one-time costs related to the Big Heart acquisition are
anticipated to be approximately $290.0 and are expected to be
incurred through 2018. These costs primarily consist of employee-
related costs, outside service and consulting costs, and other costs
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
related to the acquisition. We have incurred cumulative costs of
$245.3 related to the integration of Big Heart, including $64.1
in 2017.
We anticipate net realized synergies related to the Big Heart
acquisition of approximately $200.0 annually by the end of 2018.
To date, we have realized $159.0 of that goal, reflecting $122.0 of
synergies in 2017 that were incremental to those achieved in 2016.
On December 31, 2015, we sold our U.S. canned milk brands and
operations to Eagle Family Foods Group LLC, a subsidiary of
funds affiliated with Kelso & Company. The transaction included
canned milk products that were primarily sold in U.S. retail and
foodservice channels under the Eagle Brand® and Magnolia®
brands, along with other branded and private label trade names,
with annual net sales of approximately $200.0. Our manufacturing
facilities in El Paso, Texas, and Seneca, Missouri, were included in
the transaction, but our canned milk business in Canada was
excluded. The operating results for this business were primarily
included in the U.S. Retail Consumer Foods segment prior to the
sale. We received proceeds from the divestiture of $193.7, which
were net of transaction costs and a working capital adjustment, and
recognized a pre-tax gain of $25.3.
Net sales
Gross profit
% of net sales
Operating income
% of net sales
Net income:
Net income
Net income per common share – assuming dilution
Adjusted gross profit (A)
% of net sales
Adjusted operating income (A)
% of net sales
Adjusted income: (A)
Year Ended April 30,
2017
$7,392.3
$2,835.3
38.4%
$1,031.5
14.0%
$ 592.3
$
5.10
$2,868.2
2016
$7,811.2
$2,967.8
2015
$5,692.7
$1,968.7
38.0%
34.6%
$1,145.3
$ 772.0
14.7%
13.6%
$ 688.7
$
5.76
$2,968.0
$ 344.9
$
3.33
$1,999.4
38.8%
38.0%
35.1%
$1,481.8
$1,489.8
$ 970.2
20.0%
19.1%
17.0%
Income
Earnings per share – assuming dilution
$ 895.9
7.72
$
$ 931.3
7.79
$
$ 475.6
4.59
$
2017
% Increase
(Decrease)
2016
% Increase
(Decrease)
(5)%
(4)
(10)
(14)
(11)
(3)
(1)
(4)
(1)
37%
51
48
100
73
48
54
96
70
(A) We use non-GAAP financial measures to evaluate our performance. Refer to “Non-GAAP Financial Measures” in this discussion and analysis for a
reconciliation to the comparable GAAP financial measure.
Summary of 2017
Net sales decreased 5 percent in 2017, driven by the non-
comparable impact from the U.S. canned milk business, which
was divested during the third quarter of 2016, as well as lower net
price realization and unfavorable volume/mix in the current year.
Operating income decreased 10 percent, primarily due to the
impact of noncash impairment charges of $133.2 recognized
during 2017 and the net sales decline. For additional information
on the impairment charges, see Note 7: Goodwill and Other
Intangible Assets. Additionally, prior year results benefited from
the recognition of a $25.3 pre-tax gain on the divestiture of the
U.S. canned milk business and the related profits prior to the
divestiture. Selling, distribution, and administrative (“SD&A”)
expenses and merger and integration costs were lower in 2017 as
compared to 2016. Operating income excluding non-GAAP
adjustments (“adjusted operating income”) decreased 1 percent in
2017 and excluded the impact of the impairment charges and the
reduction in merger and integration costs. Net income per diluted
share decreased 11 percent in 2017, while adjusted earnings per
share decreased 1 percent. Both 2017 per share measures reflect
the benefit of a decrease in weighted-average common shares
outstanding as a result of our share repurchase activities during the
fourth quarters of 2017 and 2016. However, this benefit was more
than offset by the impact of an increase in the effective tax rate in
2017 as compared to the prior year.
Summary of 2016
Net sales in 2016 increased 37 percent, driven by the Big Heart
acquisition. Approximately 11 months of incremental Big Heart
net sales, totaling $2.1 billion, was realized in 2016. Operating
income increased 48 percent, driven by the incremental Big Heart
business, partially offset by an increase in merger and integration
costs. Adjusted operating income increased 54 percent. Net income
per diluted share increased 73 percent in 2016, while adjusted
earnings per share increased 70 percent. In comparison to the prior
year, both 2016 per share measures reflect a benefit from the one-
time recognition in 2015 of $173.3 of other debt costs incurred in
connection with the Big Heart acquisition and the related
refinancing activities, a decrease in our effective tax rate in 2016,
and the gain on the divestiture of the U.S. canned milk business.
These items were mostly offset by the impact of the issuance of
17.9 million shares of our common stock and an increase in
interest expense due to new borrowings in the fourth quarter of
2015 to finance the Big Heart acquisition.
2017 ANNUAL REPORT 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
Net Sales
2017 Compared to 2016
Year Ended April 30,
2017
$7,392.3
—
2016
$7,811.2
(153.5)
Increase
(Decrease)
$(418.9)
153.5
%
(5)%
2
3.8
—
3.8 —
$7,396.1
$7,657.7
$(261.6)
(3)%
Net sales
Divestiture
Foreign currency
exchange
Net sales excluding
divestiture and
foreign currency
exchange (A)
Amounts may not add due to rounding.
(A) Net sales excluding divestiture and foreign currency exchange is a non-
GAAP measure used to evaluate performance internally. This measure
provides useful information to investors because it enables comparison
of results on a year-over-year basis. Net sales excluding divestiture and
foreign currency exchange in the table above excludes the impact of
the U.S. canned milk business, which was divested on December 31,
2015, and foreign currency exchange.
The net sales decrease in 2017 was partially due to the impact of
the divested U.S. canned milk business. Excluding the non-
comparable divested business and foreign currency exchange, net
sales decreased 3 percent, driven by the U.S. Retail Coffee
segment, specifically the Folgers brand, and the U.S. Retail Pet
Foods segment. The decline reflected lower net price realization
and unfavorable volume/mix, which contributed somewhat equally
to lower net sales.
2016 Compared to 2015
Year Ended April 30,
Net sales
Acquisitions
Divestiture
Foreign currency
exchange
Net sales excluding
acquisitions,
divestiture, and
foreign currency
exchange (A)
2016
$ 7,811.2
(2,067.2)
—
Increase
2015
$5,692.7
(Decrease)
$ 2,118.5
— (2,067.2)
47.6
(47.6)
%
37%
(36)
1
59.8
—
59.8
1
$ 5,803.8
$5,645.1
$ 158.7
3%
Amounts may not add due to rounding.
(A) Net sales excluding acquisitions, divestiture, and foreign currency
exchange is a non-GAAP measure used to evaluate performance
internally. This measure provides useful information to investors
because it enables comparison of results on a year-over-year basis.
Net sales excluding acquisitions, divestiture, and foreign currency
exchange in the table above excludes the incremental impact of the
Big Heart and Sahale acquisitions, the noncomparable impact of the
U.S. canned milk divestiture, and foreign currency exchange.
26 THE J. M. SMUCKER COMPANY
The net sales increase in 2016 was driven by incremental Big
Heart net sales of $2.1 billion that year. Net sales excluding
acquisitions, divestiture, and foreign currency exchange increased
3 percent, primarily due to favorable volume/mix, which
contributed 4 percentage points to the net sales increase. The
favorable volume/mix was driven by Dunkin’ Donuts K-Cup®
pods, which were introduced at the beginning of 2016. Net price
realization was lower, contributing a 1 percentage point decline to
the net sales change.
Operating Income
The following table presents the components of operating income
as a percentage of net sales.
Gross profit
Selling, distribution, and
administrative expenses:
Marketing
Advertising
Selling
Distribution
General and administrative
Total selling, distribution, and
administrative expenses
Amortization
Impairment charges
Other special project costs
Other operating income – net
Operating income
Amounts may not add due to rounding.
Year Ended April 30,
2017
38.4%
2016
38.0%
2015
34.6%
3.4%
2.3
3.4
3.3
6.5
18.8%
2.8
1.8
1.0
(0.1)
14.0%
3.5%
2.2
4.0
2.9
6.7
19.3%
2.7
—
1.7
(0.4)
14.7%
3.1%
1.9
3.7
2.9
6.6
18.1%
1.9
—
1.0
—
13.6%
2017 Compared to 2016
Gross profit decreased $132.5, or 4 percent, in 2017, primarily
reflecting unfavorable volume/mix and the loss of U.S. canned
milk profits. The impact of lower net price realization was offset
by a reduction in commodity and manufacturing overhead costs
and incremental synergy realization related to the Big Heart
acquisition. Gross profit excluding non-GAAP adjustments
(“adjusted gross profit”) decreased $99.8, or 3 percent, over the
same period and excluded a $39.2 unfavorable change in the
impact of unallocated derivative gains and losses as compared to
the prior year.
SD&A expenses decreased $119.6, or 8 percent, in 2017, primarily
driven by incremental synergy realization. Additionally, Big Heart
integration costs decreased by $81.1, or 56 percent.
Operating income decreased $113.8, or 10 percent, in 2017,
reflecting noncash impairment charges of $133.2 related to certain
indefinite-lived trademarks, primarily within the U.S. Retail Pet
Foods segment. Additionally, prior year results benefited from the
recognition of the $25.3 gain related to the divestiture of the U.S.
canned milk business. Adjusted operating income decreased
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
1 percent, with the primary differences from GAAP results being
the exclusion of the impairment charges, merger and integration
costs, and the $39.2 unfavorable change in the impact of
unallocated derivative gains and losses as compared to the
prior year.
2016 Compared to 2015
Gross profit increased $999.1, or 51 percent, in 2016, primarily
due to the incremental Big Heart business. Excluding the
incremental Big Heart business, gross profit was still higher, driven
by Dunkin’ Donuts K-Cup® pods and the net benefit of a reduction
in commodity costs, primarily attributed to green coffee, which
was partially offset by lower net pricing. Adjusted gross profit
increased $968.6, or 48 percent, over the same period and excluded
a $36.5 favorable change in the impact of unallocated derivative
gains and losses as compared to the prior year.
SD&A expenses increased $479.0, or 46 percent, in 2016,
primarily driven by the incremental Big Heart business and higher
selling expense due to royalties related to Dunkin’ Donuts
K-Cup® pods.
Amortization expense increased $98.7 in 2016, primarily due to
the addition of Big Heart finite-lived intangible assets.
Operating income increased $373.3, or 48 percent, in 2016,
reflecting the incremental Big Heart business and the $25.3 gain on
the divestiture of the U.S. canned milk business, partially offset by
an increase in Big Heart integration costs of $109.2. Adjusted
operating income increased $519.6, or 54 percent, over the same
period and excluded the impact of merger and integration costs and
the $36.5 favorable change in the impact of unallocated derivative
gains and losses as compared to the prior year.
Interest Expense and Other Debt Costs
Net interest expense decreased $8.0 in 2017, primarily due to a
lower outstanding balance on our senior unsecured delayed-draw
Term Loan Credit Agreement (“Term Loan”) in 2017 as compared
to 2016.
Net interest expense increased $91.2 in 2016, primarily due to the
impact of the incremental interest related to the debt issued to
partially finance the Big Heart acquisition. In 2015, in addition to
interest expense, we incurred $173.3 of other debt costs related to
the Big Heart acquisition. The majority of these costs were make-
whole payments incurred when we prepaid our outstanding
privately placed Senior Notes of $1.1 billion.
Income Taxes
Income taxes decreased 1 percent in 2017, due to a decrease in
income before income taxes, mostly offset by the impact of a
higher effective tax rate in 2017 of 32.6 percent. The 2016
effective tax rate of 29.6 percent was impacted by the recognition
of a $50.5 noncash deferred tax benefit related to the integration of
Big Heart into the Company, partially offset by the impact of
higher deferred state income tax expense, which was a result of
state tax law changes.
Income taxes increased 62 percent in 2016, due to an increase
in income before income taxes, partially offset by the impact of
a lower effective tax rate in 2016. The effective tax rate of
29.6 percent in 2016 was significantly lower than the rate of
34.1 percent in 2015, mainly due to the recognition of the
$50.5 noncash deferred tax benefit related to the integration of
Big Heart into the Company.
Restructuring Activities
An organization optimization program was approved by the Board
of Directors during the fourth quarter of 2016 as part of our
ongoing efforts to reduce costs and optimize the organization. As
part of this program, we exited two leased facilities in Livermore,
California, and consolidated all ancient grains and pasta production
into our facility in Chico, California, during 2017. Additionally, we
will discontinue the production of coffee at our Harahan,
Louisiana, facility and consolidate all related coffee production
into one of our facilities in New Orleans, Louisiana, which we
expect to complete by December 31, 2017. We have also identified
additional opportunities to further optimize the overall
organization. Upon completion of these initiatives, the organization
optimization program will result in total headcount reductions of
approximately 275 full-time positions.
Total restructuring costs related to the program are expected to be
approximately $40.0, of which the majority represents employee-
related costs, and the remainder primarily consists of site
preparation, equipment relocation, and production start-up costs at
the impacted facilities. We have incurred cumulative restructuring
costs of $19.9, virtually all of which were incurred during 2017.
The remaining costs are anticipated to be incurred during 2018.
We expect to achieve approximately $50.0 of annual cost
reductions related to our organization optimization program,
mainly during 2018. We plan to invest these savings in
our businesses.
Cost Management Program
In addition to our organization optimization program, we
announced a separate cost management program during the fourth
quarter of 2017, which is comprised of several cost reduction
initiatives, including zero-based budgeting, SKU rationalization,
and revenue growth management. We expect to realize
approximately $200.0 of cost reductions annually by the end of
2020 as a result of these initiatives.
Commodities Overview
The raw materials we use are primarily commodities, agricultural-
based products, and packaging materials. The most significant of
these materials, based on annual spend, are green coffee, plastic,
grains, peanuts, and edible oils. Green coffee, certain grains, and
certain edible oils are traded on active regulated exchanges, and
the price of these commodities fluctuates based on market
conditions. Derivative instruments, including futures and options,
are used to minimize the impact of price volatility for
these commodities.
2017 ANNUAL REPORT 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
We source green coffee from more than 20 coffee-producing
countries. Its price is subject to high volatility due to factors such
as weather, global supply and demand, plant disease, investor
speculation, and political and economic conditions in the
source countries.
We frequently enter into long-term contracts to purchase plastic
packaging, which is sourced mainly from within the U.S. Plastic
resin is made from petrochemical feedstock and natural gas
feedstock, and the price can be influenced by feedstock, energy,
and crude oil prices as well as global economic conditions.
We source grains, peanuts, and edible oils mainly from North
America. The grains we purchase are mainly wheat and corn. We
are one of the largest procurers of peanuts in the U.S. and
frequently enter into long-term purchase contracts for various
periods of time to mitigate the risk of a shortage of this
commodity. The edible oils we purchase are mainly soybean and
canola. The price of grains, peanuts, and edible oils are driven
primarily by weather, which impacts crop sizes and yield, as well
as global demand, especially from large importing countries such
as China and India. In addition, the prices of edible oils and certain
grains, such as corn, have been impacted by the biofuels industry’s
demand for these commodities.
In 2017, our overall commodity costs were slightly lower than
in 2016, primarily due to lower costs for green coffee and
protein meals.
Segment Results
We have three reportable segments: U.S. Retail Coffee, U.S. Retail
Consumer Foods, and U.S. Retail Pet Foods. Within our segment
results, International and Foodservice represents a combination of
the strategic business areas not included in the U.S. retail market
segments. The U.S. Retail Coffee segment primarily includes the
domestic sales of Folgers, Dunkin’ Donuts, and Café Bustelo
branded coffee; the U.S. Retail Consumer Foods segment primarily
includes domestic sales of Jif, Smucker’s, Crisco, and Pillsbury
branded products; and the U.S. Retail Pet Foods segment primarily
includes domestic sales of Meow Mix, Milk-Bone, Natural
Balance, Kibbles ’n Bits, 9Lives, Pup-Peroni®, and Nature’s
Recipe® branded products. International and Foodservice is
comprised of products distributed domestically and in foreign
countries through retail channels and foodservice distributors and
operators (e.g., restaurants, lodging, schools and universities,
health care operators).
Effective May 1, 2016, amortization expense and impairment
charges related to intangible assets is reported outside of segment
operating results. Prior year segment results have been modified to
conform to the new presentation. For additional information on the
change, see Note 5: Reportable Segments.
Year Ended April 30,
2017
2016
2015
2017
% Increase
(Decrease)
2016
% Increase
(Decrease)
Net sales:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Segment profit (loss):
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Segment profit (loss) margin:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
$2,108.6
2,085.4
2,135.9
1,062.4
$ 682.4
458.2
481.0
185.1
32.4%
22.0
22.5
17.4
$ 2,239.2
2,269.7
2,250.4
1,051.9
$ 722.6
467.5
493.9
179.0
32.3%
20.6
21.9
17.0
$ 2,076.1
2,330.8
239.1
1,046.7
$ 623.2
466.0
(6.4)
161.6
30.0%
20.0
(2.7)
15.4
(6)%
(8)
(5)
1
(6)%
(2)
(3)
3
8%
(3)
n/m
—
16%
—
n/m
11
U.S. Retail Coffee
The U.S. Retail Coffee segment net sales decreased $130.6 in
2017, primarily due to lower net price realization, which was
mainly attributed to the net impact of pricing actions taken since
the beginning of 2016, and unfavorable volume/mix, which
reduced net sales by 3 percentage points. The unfavorable volume/
mix was driven by the Folgers brand and was partially offset by
favorable volume/mix for the Café Bustelo and Dunkin’
Donuts brands. Segment profit decreased $40.2, primarily due to
the unfavorable volume/mix as well as the impact of lower net
price realization, which was partially offset by lower commodity
and manufacturing overhead costs and incremental
synergy realization.
The U.S. Retail Coffee segment net sales increased $163.1 in 2016,
reflecting favorable volume/mix, which contributed 9 percentage
points of growth, driven by Dunkin’ Donuts K-Cup® pods. Within
28 THE J. M. SMUCKER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
the Folgers brand, growth in mainstream roast and ground
offerings was offset by a decline in Folgers K-Cup® pods. Segment
profit increased $99.4, reflecting the benefit of lower
green coffee costs, which was partially offset by lower net price
realization, and the contribution from Dunkin’ Donuts
K-Cup® pods.
U.S. Retail Consumer Foods
The U.S. Retail Consumer Foods segment net sales decreased
$184.3 in 2017, primarily reflecting noncomparable net sales of
$138.9 in the prior year related to the divested U.S. canned milk
business. Excluding the impact of the divestiture, net sales
decreased 2 percent, which was entirely driven by unfavorable
volume/mix, primarily related to Smucker’s fruit spreads and
the Jif and truRoots brands, partially offset by growth in Smucker’s
Uncrustables® frozen sandwiches. Segment profit decreased $9.3;
however, excluding the $25.3 gain related to the U.S. canned milk
divestiture and canned milk profits from the prior year, segment
profit increased 10 percent, as lower manufacturing overhead costs
and incremental synergy realization more than offset an increase in
marketing expense.
The U.S. Retail Consumer Foods segment net sales decreased
$61.1 in 2016, primarily due to lower net price realization and the
impact of $41.0 of noncomparable net sales in the prior year
related to the divested U.S. canned milk business, slightly offset by
favorable volume/mix. The lower net price realization was
primarily related to the Jif, Crisco, and Pillsbury brands. The
favorable volume/mix, which contributed 1 percentage point of
growth to segment net sales, was led by Smucker’s Uncrustables
frozen sandwiches and Jif peanut butter, slightly offset by Pillsbury
baking mixes and frosting. Volume for Smucker’s Uncrustables
increased 26 percent. Segment profit was flat in 2016, compared to
2015, as overall lower commodity costs, primarily for milk, oils,
and peanuts, and the $25.3 gain related to the divestiture were
offset by lower net price realization and higher manufacturing
overhead costs.
U.S. Retail Pet Foods
The U.S. Retail Pet Foods segment net sales decreased $114.5 in
2017, primarily due to unfavorable volume/mix, which reduced net
sales by 3 percentage points. This was driven by the Kibbles’n
Bits, Meow Mix, Natural Balance, and 9Lives brands. Net price
realization was also lower, driven by the Natural Balance and
Milk-Bone brands. Segment profit decreased $12.9, as the impact
of unfavorable volume/mix, lower net price realization, and higher
distribution costs more than offset the impact of lower commodity
costs, incremental synergy realization, and a decrease in marketing
expense. Although not reflected in segment profit, impairment
charges of $128.5 were recognized in 2017 related to certain
indefinite-lived trademarks within the U.S. Retail Pet
Foods segment.
The U.S. Retail Pet Foods segment contributed net sales of
$2.3 billion in 2016, representing low single-digit percent growth
compared to the results of the business for the prior year, the
majority of which were reported under previous ownership. The
net sales increase was driven by distribution gains for the Natural
Balance brand and growth in Milk-Bone, which more than offset
declines in Kibbles’n Bits and Meow Mix. The segment contributed
segment profit of $493.9 in 2016, impacted by lower commodity
costs and favorable volume/mix as compared to the prior year,
partially offset by lower net price realization, reflecting
incremental promotional activities.
International and Foodservice
International and Foodservice net sales increased $10.5 in 2017, as
favorable volume/mix, which contributed 4 percentage points of
growth to net sales, more than offset the impacts of lower net price
realization and $14.6 of noncomparable net sales in the prior year
related to the divested U.S. canned milk business. Segment profit
increased $6.1, primarily due to favorable volume/mix,
incremental synergy realization, and a $3.8 pre-tax gain on the sale
of our equity interest in Guilin Seamild Biologic Technology
Development Co., Ltd. (“Seamild”), which more than offset the
unfavorable net impact of lower prices and lower costs and the loss
of profits from the divested canned milk business.
International and Foodservice net sales increased $5.2 in 2016, as
incremental Big Heart net sales of $36.9 and favorable volume/
mix, which contributed 3 percentage points of growth to net sales,
were mostly offset by the $59.8 unfavorable impact of foreign
currency exchange. Segment profit increased $17.4, reflecting
favorable volume/mix in Foodservice, which was partially offset
by the unfavorable net impact of lower prices and lower costs. In
Canada, the benefit of higher net price realization, decreased
marketing expense, and favorable volume/mix offset the impact of
a weaker Canadian dollar compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of funds is cash generated from operations,
supplemented by borrowings against our commercial paper
program and revolving credit facility. Total cash and cash
equivalents increased to $166.8 at April 30, 2017, compared to
$109.8 at April 30, 2016.
Within the U.S. Retail Coffee and U.S. Retail Consumer Foods
segments, we generally expect a significant use of cash to fund
working capital requirements during the first half of each fiscal
year, primarily due to the buildup of inventories to support the Fall
Bake and Holiday period, the additional increase of coffee
inventory in advance of the Atlantic hurricane season, and seasonal
fruit procurement. In these businesses, we expect cash provided by
operations in the second half of the fiscal year to significantly
exceed the amount in the first half of the year, upon completion of
the Fall Bake and Holiday period. In contrast, the U.S. Retail Pet
Foods segment does not experience significant seasonality, and
thus our working capital requirements became less seasonal overall
subsequent to the Big Heart acquisition. Cash provided by
operating activities in the second half of 2017 was $683.7,
compared to $375.3 provided through the first half of 2017.
2017 ANNUAL REPORT 29
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
$1,059.0
$ 1,461.0
$ 739.1
The following table presents our capital structure.
The following table presents selected cash flow information.
Net cash provided by operating
activities
Net cash (used for) provided
by investing activities
Net cash (used for) provided
by financing activities
Net cash provided by operating
activities
Additions to property, plant,
and equipment
Free cash flow (A)
Year Ended April 30,
2017
2016
2015
$1,059.0
$ 1,461.0
$ 739.1
(189.7)
21.7
(1,595.7)
(806.1)
(1,498.9)
857.3
(192.4)
(201.4)
(247.7)
$ 866.6
$ 1,259.6
$ 491.4
(A) Free cash flow is a non-GAAP measure used by management to
evaluate the amount of cash available for debt repayment, dividend
distribution, acquisition opportunities, share repurchases, and other
corporate purposes.
Cash provided by operating activities decreased $402.0 in 2017
as a result of a significant decrease in working capital in the prior
year, while working capital at the end of the current year was
comparable to beginning of the year levels. The decrease in
working capital in 2016 was driven by a reduction in inventory
levels, which resulted from a working capital reduction initiative,
and the timing of tax payments, including the realization of a
$49.6 one-time tax refund in the first quarter of the prior year.
Cash provided by operating activities increased $721.9 in 2016,
mainly due to an increase in net income adjusted for noncash
items, notably depreciation and amortization, and a decrease in
working capital, driven by a decrease in inventory and the timing
of certain accrued liabilities. During 2016, we established a
working capital reduction target of $200.0, the majority of which
was achieved in 2016. This initiative, as well as the impact of
lower green coffee costs, as compared to 2015, drove the reduction
in inventory.
Cash used for investing activities in 2017 consisted primarily
of $192.4 in capital expenditures and a $38.4 increase in our
derivative cash margin account balances, partially offset by
$40.6 in proceeds from the sale of our investment in Seamild. In
2016, cash provided by investing activities consisted primarily of
$193.7 in proceeds from the divestiture of the U.S. canned milk
business and a $34.8 reduction in our derivative cash margin
account balances, mostly offset by $201.4 in capital
expenditures. In 2015, cash used for investing activities consisted
primarily of $1.3 billion related to the acquisitions of Big Heart
and Sahale and $247.7 in capital expenditures.
Cash used for financing activities in 2017 consisted primarily of
the purchase of treasury shares for $437.6, mainly representing the
repurchase of 3.0 million common shares available under Board of
Directors’ (“Board”) authorizations as further described below,
dividend payments of $339.3, and prepayments on the Term Loan
30 THE J. M. SMUCKER COMPANY
of $200.0, partially offset by a $170.0 increase in short-term
borrowings during the year. In 2016, cash used for financing
activities consisted primarily of $800.0 in prepayments on the
Term Loan, the purchase of treasury shares for $441.1, mainly
representing the repurchase of 3.4 million common shares
available under Board authorizations, and dividend payments of
$316.6. In 2015, cash provided by financing activities consisted
primarily of $5.4 billion in long-term debt proceeds, which were
partially offset by $4.2 billion in long-term debt repayments and
dividend payments of $254.0.
Current portion of long-term debt
Short-term borrowings
Long-term debt, less current portion
Total debt
Shareholders’ equity
Total capital
April 30,
$
2017
499.0
454.0
4,445.5
$ 5,398.5
6,850.2
$12,248.7
2016
$
—
284.0
5,146.0
$ 5,430.0
7,008.5
$12,438.5
We have available a $1.5 billion revolving credit facility with a
group of 11 banks that matures in September 2018. Additionally,
under our commercial paper program, we can issue short-term,
unsecured commercial paper not to exceed $1.0 billion at any time.
The commercial paper program is backed by our revolving credit
facility and reduces what we can borrow under the revolving credit
facility by the amount of commercial paper outstanding. Along
with the revolving credit facility, commercial paper is used as a
continuing source of short-term financing for general corporate
purposes. As of April 30, 2017, we had $454.0 of short-term
borrowings outstanding, all of which were issued under our
commercial paper program, at a weighted-average interest rate of
1.15 percent.
As of April 30, 2017, total debt was comparable to the balance as
of April 30, 2016. Although we prepaid $200.0 on the Term Loan
during 2017, the reduction was offset by a $170.0 increase in
short-term borrowings outstanding.
We are in compliance with all of our debt covenants. For additional
information on our long-term debt, sources of liquidity, and debt
covenants, see Note 8: Debt and Financing Arrangements.
On February 22, 2017, we entered into a 10b5-1 trading plan (the
“Plan”) to facilitate the repurchase of up to 3.0 million common
shares under the Board’s authorizations. Purchases under the Plan
commenced on February 27, 2017, and concluded on
March 27, 2017, and were transacted by a broker based upon the
guidelines and parameters of the Plan. During 2017, we
repurchased 3.0 million common shares under the Plan for $418.1.
At April 30, 2017, approximately 3.6 million common shares were
remaining available for repurchase pursuant to the Board's
authorizations. There is no guarantee as to the exact number of
shares that may be repurchased or when such purchases may occur.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
During the third quarter of 2017, we announced plans to build
a Smucker’s Uncrustables frozen sandwich manufacturing facility
in Longmont, Colorado. Construction of the facility is scheduled to
begin in June 2017, and production is expected to begin in calendar
year 2019. The new facility will help meet growing demand
for Smucker’s Uncrustables frozen sandwiches and will
complement our existing facility in Scottsville, Kentucky. The
Longmont facility will be constructed in two phases, with a total
potential investment of $340.0. Phase 1 will include up to an initial
$200.0 investment to construct and equip the new facility, with an
opportunity to invest an additional $140.0 for phase 2 expansion,
dependent on product demand.
The following table presents certain cash requirements related
to 2018 investing and financing activities based on our
current expectations.
Debt obligation principal payment
Dividend payments – based on current rates and
common shares outstanding
Capital expenditures
Interest payments
Projection
Year Ending
April 30, 2018
$500.0
350.0
310.0
170.0
On May 30, 2017, we announced a definitive agreement to acquire
the Wesson® oil brand from Conagra Brands, Inc. (“Conagra”). The
all-cash transaction, which is expected to be funded primarily with
debt, is valued at approximately $285.0. We anticipate the addition
of the Wesson brand will add annual net sales of approximately
$230.0.
Following the close of the transaction, Conagra will continue to
manufacture products sold under the Wesson brand and provide
certain other transition services for up to one year. After the
transition period, we expect to consolidate Wesson production into
our existing oils manufacturing facility in Cincinnati, Ohio.
The closing of the transaction is subject to the fulfillment of
customary closing conditions, including receipt of regulatory
approvals. We expect to realize synergies of approximately
$20.0 annually within two years after the closing.
Absent any additional material acquisitions or other significant
investments, we believe that cash on hand, combined with cash
provided by operations, borrowings available under our
commercial paper program and revolving credit facility, and access
to capital markets, will be sufficient to meet our cash requirements
for the next 12 months.
As of April 30, 2017, total cash and cash equivalents of $158.5
was held by our international subsidiaries. We do not intend to
repatriate these funds to meet our cash requirements. Should we
repatriate these funds, we will be required to provide taxes based
on the applicable U.S. tax rates, net of any foreign tax
credit consideration.
NON-GAAP MEASURES
We use non-GAAP financial measures including: net sales
excluding acquisitions, divestiture, and foreign currency exchange;
adjusted gross profit, operating income, income, and earnings per
share; earnings before interest, taxes, depreciation, amortization,
and impairment charges related to intangible assets (“EBITDA (as
adjusted)”); and free cash flow, as key measures for purposes of
evaluating performance internally. We believe that investors’
understanding of our performance is enhanced by disclosing these
performance measures. Furthermore, these non-GAAP financial
measures are used by management in preparation of the annual
budget and for the monthly analyses of our operating results. The
Board of Directors also utilizes the adjusted earnings per share and
free cash flow measures as components for measuring performance
for incentive compensation purposes.
Non-GAAP measures exclude certain items affecting
comparability, that can significantly affect the year-over-year
assessment of operating results, which include merger and
integration and restructuring costs (“special project costs”) and
unallocated gains and losses on commodity and foreign currency
exchange derivatives (“unallocated derivative gains and losses”).
The special project costs in the following table relate to specific
merger and integration and restructuring projects, and the
unallocated derivative gains and losses reflect the changes in fair
value of our commodity and foreign currency exchange contracts.
Beginning May 1, 2016, we redefined our non-GAAP measures to
also exclude amortization expense and impairment charges related
to intangible assets, and have modified prior year results to
conform to the new definition. We believe that excluding
amortization expense and impairment charges related to intangible
assets in our non-GAAP measures is more reflective of our
operating performance and the way in which we manage our
business, as these items are noncash expenses and can be
significantly affected by the timing and size of our acquisitions.
These non-GAAP financial measures are not intended to replace
the presentation of financial results in accordance with U.S.
generally accepted accounting principles (“GAAP”). Rather, the
presentation of these non-GAAP financial measures supplements
other metrics we use to internally evaluate our businesses and
facilitate the comparison of past and present operations and
liquidity. These non-GAAP financial measures may not be
comparable to similar measures used by other companies and may
exclude certain nondiscretionary expenses and cash payments.
2017 ANNUAL REPORT 31
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
The following table reconciles certain non-GAAP financial measures to the comparable GAAP financial measure. See page 26 for a
reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.
Gross profit reconciliation:
Gross profit
Unallocated derivative losses (gains)
Cost of products sold – special project costs
Adjusted gross profit
Operating income reconciliation:
Operating income
Amortization
Impairment charges
Unallocated derivative losses (gains)
Cost of products sold – special project costs
Other special project costs
Adjusted operating income
Net income reconciliation:
Net income
Income taxes
Amortization
Impairment charges
Unallocated derivative losses (gains)
Cost of products sold – special project costs
Other special project costs
Adjusted income before income taxes
Income taxes, as adjusted (A)
Adjusted income
Weighted-average shares – assuming dilution
Adjusted earnings per share – assuming dilution
EBITDA (as adjusted) reconciliation:
Net income
Income taxes
Interest expense – net
Depreciation
Amortization
Impairment charges
EBITDA (as adjusted)
Free cash flow reconciliation:
Net cash provided by operating activities
Additions to property, plant, and equipment
Free cash flow
2017
2016
2015
2014
2013
Year Ended April 30,
$2,835.3
27.2
5.7
$2,868.2
$1,031.5
207.3
133.2
27.2
5.7
76.9
$1,481.8
$ 592.3
286.1
207.3
133.2
27.2
5.7
76.9
$1,328.7
432.8
$ 895.9
116,120,780
7.72
$
$ 592.3
286.1
163.1
211.7
207.3
133.2
$1,593.7
$2,967.8
(12.0)
12.2
$2,968.0
$1,145.3
208.4
—
(12.0)
12.2
135.9
$1,489.8
$1,968.7
24.5
6.2
$1,999.4
$ 772.0
109.7
1.2
24.5
6.2
56.6
$ 970.2
$2,031.0
(5.3)
9.4
$2,035.1
$ 919.0
98.9
—
(5.3)
9.4
25.6
$1,047.6
$2,027.6
(6.6)
11.5
$2,032.5
$ 910.4
96.8
—
(6.6)
11.5
49.5
$1,061.6
$ 688.7
289.2
208.4
—
(12.0)
12.2
135.9
$1,322.4
391.1
$ 931.3
119,477,312
7.79
$
$ 344.9
178.1
109.7
1.2
24.5
6.2
56.6
$ 721.2
245.6
$ 475.6
103,697,261
4.59
$
$ 565.2
284.5
98.9
—
(5.3)
9.4
25.6
$ 978.3
327.5
$ 650.8
104,346,587
6.24
$
$ 544.2
273.1
96.8
—
(6.6)
11.5
49.5
$ 968.5
323.6
$ 644.9
108,851,153
5.92
$
$ 688.7
289.2
171.1
221.7
208.4
—
$1,579.1
$ 344.9
178.1
79.9
157.5
109.7
1.2
$ 871.3
$ 565.2
284.5
79.4
157.5
98.9
—
$1,185.5
$ 544.2
273.1
93.4
154.1
96.8
—
$1,161.6
$1,059.0
(192.4)
$ 866.6
$1,461.0
(201.4)
$1,259.6
$ 739.1
(247.7)
$ 491.4
$ 863.3
(279.5)
$ 583.8
$ 858.7
(206.5)
$ 652.2
(A) Income taxes, as adjusted is based upon our GAAP effective tax rate and reflects the impact of items excluded from GAAP net income to derive
adjusted income.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have material off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons,
also known as variable interest entities. Transactions with related parties are in the ordinary course of business, and are not material to our
results of operations, financial condition, or cash flows.
32 THE J. M. SMUCKER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations by fiscal year at April 30, 2017.
Long-term debt obligations, including current portion (A)
Interest payments (B)
Operating lease obligations (C)
Purchase obligations (D)
Other liabilities (E)
Total
Total
2018
2019–2020
2021–2022
$4,950.0
$ 500.0
$1,050.0
$1,150.0
1,784.3
156.6
1,147.6
290.0
$8,328.5
163.1
33.9
1,050.8
16.3
$1,764.1
312.2
49.6
96.6
37.1
$1,545.5
241.1
32.0
0.2
15.3
$1,438.6
2023 and
beyond
$2,250.0
1,067.9
41.1
—
221.3
$3,580.3
(A) Excludes the impact of offering discounts, make-whole payments, and debt issuance costs.
(B) Includes interest payments on our long-term debt, which reflects estimated payments for our variable-rate debt based on the current interest rate outlook.
(C) Includes the minimum rental commitments under non-cancelable operating leases.
(D) Includes agreements that are enforceable and legally bind us to purchase goods or services, including certain obligations related to normal, ongoing
purchase obligations in which we have guaranteed payment to ensure availability of raw materials, packaging supplies, and co-pack arrangements. We
expect to receive consideration for these purchase obligations in the form of materials and services. These purchase obligations do not represent the
entire anticipated purchases in the future, but represent only those items for which we are contractually obligated.
(E) Mainly consists of projected commitments associated with our defined benefit pension and other postretirement benefit plans. The liability for
unrecognized tax benefits and tax-related net interest of $44.5 under Financial Accounting Standards Board Accounting Standards Codification 740,
Income Taxes, is excluded, since we are unable to reasonably estimate the timing of cash settlements with the respective taxing authorities.
CRITICAL ACCOUNTING ESTIMATES
AND POLICIES
The preparation of financial statements in conformity with U.S.
GAAP requires that we make estimates and assumptions that in
certain circumstances affect amounts reported in the accompanying
consolidated financial statements. In preparing these financial
statements, we have made our best estimates and judgments of
certain amounts included in the financial statements, giving due
consideration to materiality. We do not believe there is a great
likelihood that materially different amounts would be reported
under different conditions or using different assumptions related to
the accounting policies described below. However, application of
these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates.
Revenue Recognition: We recognize revenue when all of the
following criteria have been met: a valid customer order with a
determinable price has been received; title and risk of loss have
transferred to the customer; there is no further significant
obligation to assist in the resale of the product; and collectibility is
reasonably assured. Our products are shipped with FOB
destination terms, with the exception of certain export customers
and those customers that elect to pick up.
Trade marketing and merchandising programs are classified as a
reduction of sales. A provision for estimated returns and
allowances is recognized as a reduction of sales at the time revenue
is recognized.
Trade Marketing and Merchandising Programs: In order to
support our products, various promotional activities are conducted
through retail trade, distributors, or directly with consumers,
including in-store display and product placement programs, feature
price discounts, coupons, and other similar activities. We regularly
review and revise, when we deem necessary, estimates of costs for
these promotional programs based on estimates of what will be
redeemed by retail trade, distributors, or consumers. These
estimates are made using various techniques, including historical
data on performance of similar promotional programs. Differences
between estimated expenditures and actual performance are
recognized as a change in estimate in a subsequent period. During
2017, 2016, and 2015, subsequent period adjustments
approximated less than 2 percent of both consolidated pre-tax
income and cash provided by operating activities. However, as
total promotional expenditures, including amounts classified as a
reduction of sales, represented 33 percent of net sales in 2017, the
possibility exists that reported results could be different if factors
such as the level and success of the promotional programs or other
conditions differ from expectations.
Income Taxes: We account for income taxes using the liability
method. In the ordinary course of business, we are exposed to
uncertainties related to tax filing positions and periodically assess
the technical merits of these tax positions for all tax years that
remain subject to examination, based upon the latest information
available. For uncertain tax positions, we have recognized a
liability for unrecognized tax benefits, including any applicable
interest and penalty charges.
In assessing the need for a valuation allowance, we estimate future
taxable income, considering the viability of ongoing tax planning
strategies and the probable recognition of future tax deductions and
loss carryforwards. Valuation allowances related to deferred tax
assets can be affected by changes in tax laws, statutory tax rates,
and projected future taxable income levels. Changes in estimated
realization of deferred tax assets would result in an adjustment to
income in the period in which that determination is made, unless
2017 ANNUAL REPORT 33
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
such changes are determined to be an adjustment to goodwill
within the allowable measurement period under the acquisition
method of accounting.
The future tax benefit arising from the net deductible temporary
differences and tax carryforwards is $227.3 and $252.9 at
April 30, 2017 and 2016, respectively. We believe that the earnings
during the periods when the temporary differences become
deductible will be sufficient to realize the related future income tax
benefits. For those jurisdictions where the expiration date of tax
carryforwards or the projected operating results indicate that
realization is not likely, a valuation allowance would have
been provided.
Long-Lived Assets: Long-lived assets, other than goodwill and
other indefinite-lived intangible assets, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net
undiscounted cash flows estimated to be generated by such assets.
If such assets are considered to be impaired, the impairment to be
recognized is the amount by which the carrying amount of the
assets exceeds the estimated fair value of the assets. However,
determining fair value is subject to estimates of both cash flows
and discount rates, and different estimates could yield different
results. There are no events or changes in circumstances of which
we are aware that indicate the carrying value of our long-lived
assets may not be recoverable at April 30, 2017.
Goodwill and Other Indefinite-Lived Intangible Assets:
A significant portion of our assets is goodwill and other intangible
assets, the majority of which are not amortized but are reviewed at
least annually for impairment and more often if indicators of
impairment exist. At April 30, 2017, the carrying value of goodwill
and other intangible assets totaled $12.2 billion, compared to total
assets of $15.6 billion and total shareholders’ equity of
$6.9 billion. If the carrying value of these assets exceeds the
current estimated fair value, the asset is considered impaired and
this would result in a noncash charge to earnings. Any such
impairment charge would reduce earnings and could be material.
Events and conditions that could result in impairment include a
sustained drop in the market price of our common shares,
increased competition or loss of market share, obsolescence,
product claims that result in a significant loss of sales or
profitability over the product life, deterioration in macroeconomic
conditions, or declining financial performance in comparison to
projected results.
To test for goodwill impairment, we estimate the fair value of each
of our reporting units using both a discounted cash flow valuation
technique and a market-based approach. The impairment test
incorporates estimates of future cash flows; allocations of certain
assets, liabilities, and cash flows among reporting units; future
growth rates; terminal value amounts; and the applicable weighted-
average cost of capital used to discount those estimated cash flows.
The estimates and projections used in the calculation of fair value
are consistent with our current and long-range plans, including
34 THE J. M. SMUCKER COMPANY
anticipated changes in market conditions, industry trends, growth
rates, and planned capital expenditures. Changes in forecasted
operations and other estimates and assumptions could impact the
assessment of impairment in the future.
At April 30, 2017, goodwill totaled $6.1 billion. Goodwill is
substantially concentrated within the U.S. Retail Coffee, U.S.
Retail Pet Foods, and U.S. Retail Consumer Foods segments.
During 2017, no goodwill impairment was recognized as a result
of the evaluations performed throughout the year. As of April 30,
2017, the estimated fair value of each of our seven reporting units
was substantially in excess of its carrying value, with the exception
of the Pet Foods reporting unit, for which its fair value exceeded
its carrying value by approximately 6 percent. A sensitivity
analysis was performed for the Pet Foods reporting unit, assuming
a hypothetical 50-basis-point decrease in the expected long-term
growth rate or a hypothetical 50-basis-point increase in the
weighted-average cost of capital, and both scenarios independently
yielded an estimated fair value for the Pet Foods reporting unit at
or slightly below carrying value. The goodwill related to the U.S.
Retail Pet Foods segment is a result of the Big Heart acquisition
and remains susceptible to future impairment as the current
estimated fair value is close to the carrying value at the date of the
acquisition. A change to the assumptions regarding the future
performance of the U.S. Retail Pet Foods segment, or a portion of
it, or a change to other assumptions, could result in impairment
losses in the future.
Other indefinite-lived intangible assets, consisting entirely of
trademarks, are also tested for impairment at least annually and
more often if events or changes in circumstances indicate their
carrying value may not be recoverable. To test these assets for
impairment, we estimate the fair value of each asset based on a
discounted cash flow model using various inputs, including
projected revenues, an assumed royalty rate, and a discount rate.
Changes in these estimates and assumptions could impact the
assessment of impairment in the future.
At April 30, 2017, other indefinite-lived intangible assets totaled
$2.9 billion. Trademarks that represent our leading brands
comprise more than 90 percent of the total carrying value of other
indefinite-lived intangible assets. As of April 30, 2017, each of
these leading brand trademarks had an estimated fair value
substantially in excess of its carrying value, with the exception of
the trademarks acquired as part of the Big Heart acquisition.
During 2017, we recognized impairment charges of $133.2 related
to certain indefinite-lived trademarks, primarily within the U.S.
Retail Pet Foods segment, to the extent that the carrying value
exceeded the estimated fair value. These indefinite-lived
trademarks remain susceptible to future impairment charges as the
carrying value approximates estimated fair value at April 30, 2017.
Pension and Other Postretirement Benefit Plans: To
determine the ultimate obligation under our defined benefit
pension and other postretirement benefit plans, we must estimate
the future cost of benefits and attribute that cost to the time period
during which each covered employee works. Various actuarial
assumptions must be made in order to predict and measure costs
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
and obligations many years prior to the settlement date, the most
significant being the interest rates used to discount the obligations
of the plans, the long-term rates of return on the plans’ assets,
mortality assumptions, assumed pay increases, and the health care
cost trend rates. We, along with third-party actuaries and
investment managers, review all of these assumptions on an
ongoing basis to ensure that the most reasonable information
available is being considered.
As of April 30, 2017, we changed the approach utilized to estimate
the service and interest cost components of net periodic benefit
cost for our defined benefit pension and other postretirement
benefit plans. Historically, we estimated the service and interest
cost components using a single weighted-average discount rate
derived from the yield curve used to measure the benefit obligation
at the beginning of the period. As of April 30, 2017, we utilized a
spot rate approach for the estimation of service and interest cost for
our plans by applying specific spot rates along the yield curve to
the relevant projected cash flows, to provide a better estimate of
service and interest costs. This approach does not affect the
measurement of the total benefit obligations, and will be accounted
for as a change in estimate that is effected by a change in
accounting principle. As such, this change in methodology will be
accounted for on a prospective basis beginning May 1, 2017.
For 2018 expense recognition, we will use a spot rate
methodology, determined using the method described above,
resulting in a weighted-average discount rate of 3.95 percent and
3.22 percent for the U.S. and Canadian defined benefit pension
plans, respectively, and a rate of compensation increase of 4.15
percent for the U.S. plans. We anticipate using an expected rate of
return on plan assets of 6.27 percent and
5.00 percent for the U.S. and Canadian defined benefit pension
plans, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS AND
MARKET RISK
The following discussions about our market risk disclosures
involve forward-looking statements. Actual results could differ
from those projected in the forward-looking statements. We are
exposed to market risk related to changes in interest rates, foreign
currency exchange rates, and commodity prices.
Interest Rate Risk: The fair value of our cash and cash
equivalents at April 30, 2017, approximates carrying value. We are
exposed to interest rate risk with regard to existing debt consisting
of fixed- and variable-rate maturities. Our interest rate exposure
primarily includes U.S. Treasury rates, London Interbank Offered
Rate, and commercial paper rates in the U.S.
We utilize derivative instruments to manage changes in the fair
value and cash flows of our debt. Interest rate swaps mitigate the
risk associated with the underlying hedged item. At the inception
of the contract, the instrument is evaluated and documented for
hedge accounting treatment. If the contract is designated as a cash
flow hedge, the mark-to-market gains or losses on the swap are
deferred and included as a component of accumulated other
comprehensive loss to the extent effective, and reclassified to
interest expense in the period during which the hedged transaction
affects earnings. If the contract is designated as a fair value hedge,
the swap is recognized at fair value on the balance sheet, and
changes in the fair value are recognized in interest expense.
Generally, changes in the fair value of the derivative are equal to
changes in the fair value of the underlying debt and have no net
impact on earnings. In 2015, we terminated the interest rate swap
on the 3.50 percent Senior Notes due October 15, 2021, which was
designated as a fair value hedge, and used to hedge against the
changes in fair value of the debt. As a result of the early
termination, we received $58.1 in cash, which included $4.6 of
accrued and prepaid interest and a $53.5 benefit that is deferred as
a component of the carrying value of the long-term debt and is
being recognized ratably as a reduction to interest expense over the
remaining life of the related debt. At April 30, 2017, the remaining
benefit of $36.3 was recorded as an increase in the long-term
debt balance.
Based on our overall interest rate exposure as of and during the
year ended April 30, 2017, including derivatives and other
financial instruments sensitive to interest rates, a hypothetical
10 percent movement in interest rates would not materially affect
our results of operations. In measuring interest rate risk by the
amount of net change in the fair value of our financial liabilities,
a hypothetical 100-basis-point decrease in interest rates at
April 30, 2017, would increase the fair value of our long-term
debt by $340.1.
Foreign Currency Exchange Risk: We have operations
outside the U.S. with foreign currency denominated assets and
liabilities, primarily denominated in Canadian currency. Because
we have foreign currency denominated assets and liabilities,
financial exposure may result, primarily from the timing of
transactions and the movement of exchange rates. The foreign
currency balance sheet exposures as of April 30, 2017, are not
expected to result in a significant impact on future earnings or
cash flows.
We utilize foreign currency exchange forwards and options
contracts to manage the price volatility of foreign currency
exchange fluctuations on future cash payments in Canada,
primarily related to purchases of certain raw materials and finished
goods. The contracts generally have maturities of less than one
year. We do not qualify instruments used to manage foreign
currency exchange exposures for hedge accounting treatment.
Therefore, the change in value of these instruments is immediately
recognized in the cost of products sold. Based on our hedged
foreign currency positions as of April 30, 2017, a hypothetical
10 percent change in exchange rates would result in a $13.0 loss
of fair value.
Revenues from customers outside the U.S., subject to foreign
currency exchange, represented 6 percent of net sales during 2017.
Thus, certain revenues and expenses have been, and are expected
to be, subject to the effect of foreign currency fluctuations, and
these fluctuations may have an impact on operating results.
2017 ANNUAL REPORT 35
MANAGEMENT’S DISCUSSION AND ANALYSIS
The J. M. Smucker Company
Commodity Price Risk: We use certain raw materials and other
commodities that are subject to price volatility caused by supply
and demand conditions, political and economic variables, weather,
investor speculation, and other unpredictable factors. To manage
the volatility related to anticipated commodity purchases, we use
futures and options with maturities of generally less than one year.
We do not qualify commodity derivatives for hedge accounting
treatment. As a result, the gains and losses on all commodity
derivatives are immediately recognized in cost of products sold.
The following sensitivity analysis presents our potential loss of fair
value resulting from a hypothetical 10 percent change in market
prices related to commodities.
High
Low
Average
Year Ended April 30,
2017
$40.8
13.2
26.5
2016
$40.0
16.5
32.9
The estimated fair value was determined using quoted market
prices and was based on our net derivative position by commodity
at each quarter end during the fiscal year. The calculations are not
intended to represent actual losses in fair value that we expect to
incur. In practice, as markets move, we actively manage our risk
and adjust hedging strategies as appropriate. The commodities
hedged have a high inverse correlation to price changes of the
derivative commodity instrument; thus, we would expect that any
gain or loss in the estimated fair value of its derivatives would
generally be offset by an increase or decrease in the estimated fair
value of the underlying exposures.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report contain forward-
looking statements within the meaning of federal securities laws.
The forward-looking statements may include statements
concerning our current expectations, estimates, assumptions, and
beliefs concerning future events, conditions, plans, and strategies
that are not historical fact. Any statement that is not historical in
nature is a forward-looking statement and may be identified by the
use of words and phrases such as “expect,” “anticipate,” “believe,”
“intend,” “will,” “plan,” and similar phrases.
Federal securities laws provide a safe harbor for forward-looking
statements to encourage companies to provide prospective
information. We are providing this cautionary statement in
connection with the safe harbor provisions. Readers are cautioned
not to place undue reliance on any forward-looking statements, as
such statements are by nature subject to risks, uncertainties, and
other factors, many of which are outside of our control and could
cause actual results to differ materially from such statements and
from our historical results and experience. These risks and
uncertainties include, but are not limited to, those set forth under
the caption “Risk Factors” in our Annual Report on Form 10-K, as
well as the following:
• our ability to achieve synergies and cost savings related to the
Big Heart acquisition and other programs in the amounts and
within the time frames currently anticipated and to effectively
manage the related integration and restructuring costs;
• our ability to satisfy the closing conditions for the Wesson
transaction, including receipt of required regulatory approvals,
without unexpected delays or conditions;
• our ability to generate sufficient cash flow to meet our
deleveraging objectives;
• volatility of commodity, energy, and other input costs;
• risks associated with derivative and purchasing strategies we
employ to manage commodity pricing risks;
• the availability of reliable transportation on acceptable terms;
• our ability to implement and realize the full benefit of price
changes, and the impact of the timing of the price changes to
profits and cash flow in a particular period;
• the success and cost of marketing and sales programs and
strategies intended to promote growth in our businesses,
including the introduction of new products;
• general competitive activity in the market, including
competitors’ pricing practices and promotional spending levels;
• the impact of food security concerns involving either our
products or our competitors’ products;
• the impact of accidents, extreme weather, and natural disasters;
• the concentration of certain of our businesses with key
customers and suppliers, including single-source suppliers of
certain key raw materials and finished goods, and our ability to
manage and maintain key relationships;
• the timing and amount of capital expenditures and share
repurchases;
• impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets or changes in useful lives of
other intangible assets;
• the impact of new or changes to existing governmental laws and
regulations and their application;
• the outcome of tax examinations, changes in tax laws, and other
tax matters;
• foreign currency and interest rate fluctuations; and
• risks related to other factors described under “Risk Factors” in
other reports and statements we have filed with the Securities
and Exchange Commission.
Readers are cautioned not to unduly rely on such forward-looking
statements, which speak only as of the date made, when evaluating
the information presented in this Annual Report. We do not
undertake any obligation to update or revise these forward-looking
statements to reflect new events or circumstances subsequent to the
filing of this Annual Report.
36 THE J. M. SMUCKER COMPANY
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The J. M. Smucker Company
Shareholders
The J. M. Smucker Company
Management is responsible for establishing and maintaining adequate accounting and internal control systems over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as
amended. Our internal control system is designed to provide reasonable assurance that we have the ability to record, process,
summarize, and report reliable financial information on a timely basis.
Our management, with the participation of the principal financial officer and principal executive officer, assessed the
effectiveness of the internal control over financial reporting as of April 30, 2017. In making this assessment, we used the
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (“the COSO criteria”).
Based on our assessment of internal control over financial reporting under the COSO criteria, we concluded the internal
control over financial reporting was effective as of April 30, 2017.
Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over
financial reporting as of April 30, 2017, and their report thereon is included on page 38 of this report.
Mark T. Smucker
President and
Chief Executive Officer
Mark R. Belgya
Vice Chair and
Chief Financial Officer
2017 ANNUAL REPORT 37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The J. M. Smucker Company
Board of Directors and Shareholders
The J. M. Smucker Company
We have audited The J. M. Smucker Company’s internal control over financial reporting as of April 30, 2017, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (“the COSO criteria”). The J. M. Smucker Company’s management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The J. M. Smucker Company maintained, in all material respects, effective internal control over financial
reporting as of April 30, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of The J. M. Smucker Company as of April 30, 2017 and 2016, and the related statements of
consolidated income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended April 30, 2017 of The J. M. Smucker Company, and our report dated June 19, 2017, expressed an unqualified opinion
thereon.
Akron, Ohio
June 19, 2017
38 THE J. M. SMUCKER COMPANY
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Board of Directors and Shareholders
The J. M. Smucker Company
We have audited the accompanying consolidated balance sheets of The J. M. Smucker Company as of April 30, 2017 and
2016, and the related statements of consolidated income, comprehensive income, shareholders’ equity, and cash flows for
each of the three years in the period ended April 30, 2017. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of The J. M. Smucker Company at April 30, 2017 and 2016, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended April 30, 2017, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
The J. M. Smucker Company’s internal control over financial reporting as of April 30, 2017, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated June 19, 2017, expressed an unqualified opinion thereon.
Akron, Ohio
June 19, 2017
2017 ANNUAL REPORT 39
REPORT OF MANAGEMENT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
The J. M. Smucker Company
Shareholders
The J. M. Smucker Company
Management of The J. M. Smucker Company is responsible for the preparation, integrity, accuracy, and consistency of the
consolidated financial statements and the related financial information in this report. Such information has been prepared in
accordance with U.S. generally accepted accounting principles and is based on our best estimates and judgments.
We maintain systems of internal accounting controls supported by formal policies and procedures that are communicated
throughout the Company. There is a program of audits performed by our internal audit staff designed to evaluate the
adequacy of and adherence to these controls, policies, and procedures.
Ernst & Young LLP, an independent registered public accounting firm, has audited our financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Management has made all financial
records and related data available to Ernst & Young LLP during its audit.
Our audit committee, comprised of four non-employee members of the Board of Directors, meets regularly with the
independent registered public accounting firm and management to review the work of the internal audit staff and the work,
audit scope, timing arrangements, and fees of the independent registered public accounting firm. The audit committee also
regularly satisfies itself as to the adequacy of controls, systems, and financial records. The director of the internal audit
department is required to report directly to the chair of the audit committee as to internal audit matters.
It is our best judgment that our policies and procedures, our program of internal and independent audits, and the oversight
activity of the audit committee work together to provide reasonable assurance that our operations are conducted according to
law and in compliance with the high standards of business ethics and conduct to which we subscribe.
Mark T. Smucker
President and
Chief Executive Officer
Mark R. Belgya
Vice Chair and
Chief Financial Officer
40 THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED INCOME
The J. M. Smucker Company
(Dollars in millions, except per share data)
Net sales
Cost of products sold
Gross Profit
Selling, distribution, and administrative expenses
Amortization
Impairment charges
Other special project costs (A)
Other operating income – net
Operating Income
Interest expense – net
Other debt costs
Other income – net
Income Before Income Taxes
Income taxes
Net Income
Earnings per common share:
Net Income
Net Income – Assuming Dilution
Dividends Declared per Common Share
Year Ended April 30,
2017
$7,392.3
4,557.0
2,835.3
1,390.7
207.3
133.2
76.9
(4.3)
1,031.5
(163.1)
—
10.0
878.4
286.1
$ 592.3
$
$
$
5.11
5.10
3.00
2016
$7,811.2
4,843.4
2,967.8
1,510.3
208.4
—
135.9
(32.1)
1,145.3
(171.1)
—
3.7
977.9
289.2
$ 688.7
$
$
$
5.77
5.76
2.68
2015
$5,692.7
3,724.0
1,968.7
1,031.3
109.7
1.2
56.6
(2.1)
772.0
(79.9)
(173.3)
4.2
523.0
178.1
$ 344.9
$
$
$
3.33
3.33
2.56
(A) Other special project costs includes merger and integration and restructuring costs. For more information, see Note 3: Integration and Restructuring
Costs.
See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
The J. M. Smucker Company
(Dollars in millions)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Cash flow hedging derivative activity, net of tax
Pension and other postretirement benefit plans activity, net of tax
Available-for-sale securities activity, net of tax
Total Other Comprehensive Income (Loss)
Comprehensive Income
See notes to consolidated financial statements.
Year Ended April 30,
2017
$ 592.3
2016
$ 688.7
2015
$ 344.9
(29.9)
0.4
34.1
0.4
5.0
(10.8)
0.4
(28.5)
0.3
(38.6)
(34.0)
(20.5)
(3.6)
(0.1)
(58.2)
$ 597.3
$ 650.1
$ 286.7
2017 ANNUAL REPORT 41
CONSOLIDATED BALANCE SHEETS
The J. M. Smucker Company
ASSETS
(Dollars in millions)
Current Assets
Cash and cash equivalents
Trade receivables, less allowance for doubtful accounts
Inventories:
Finished products
Raw materials
Total Inventory
Other current assets
Total Current Assets
Property, Plant, and Equipment
Land and land improvements
Buildings and fixtures
Machinery and equipment
Construction in progress
Gross Property, Plant, and Equipment
Accumulated depreciation
Total Property, Plant, and Equipment
Other Noncurrent Assets
Goodwill
Other intangible assets – net
Other noncurrent assets
Total Other Noncurrent Assets
Total Assets
See notes to consolidated financial statements.
April 30,
2017
2016
$
166.8
438.7
$
109.8
450.1
562.4
343.3
905.7
130.6
1,641.8
115.6
766.2
1,983.0
116.9
2,981.7
(1,364.2)
1,617.5
6,077.1
6,149.9
153.4
12,380.4
$15,639.7
560.0
339.4
899.4
114.1
1,573.4
114.6
727.7
1,870.7
91.3
2,804.3
(1,176.6)
1,627.7
6,091.1
6,494.4
197.5
12,783.0
$15,984.1
42 THE J. M. SMUCKER COMPANY
CONSOLIDATED BALANCE SHEETS
The J. M. Smucker Company
LIABILITIES AND SHAREHOLDERS’ EQUITY
(Dollars in millions)
Current Liabilities
Accounts payable
Accrued compensation
Accrued trade marketing and merchandising
Dividends payable
Current portion of long-term debt
Short-term borrowings
Other current liabilities
Total Current Liabilities
Noncurrent Liabilities
Long-term debt, less current portion
Defined benefit pensions
Other postretirement benefits
Deferred income taxes
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Shareholders’ Equity
Serial preferred shares – no par value:
Authorized – 6,000,000 shares; outstanding – none
Common shares – no par value:
Authorized – 300,000,000 shares; outstanding – 113,439,553 at April 30, 2017, and 116,306,894 at
April 30, 2016 (net of 33,058,177 and 30,190,836 treasury shares, respectively), at stated value
Additional capital
Retained income
Accumulated other comprehensive loss
Total Shareholders’ Equity
April 30,
$
2016
459.4
139.6
112.3
77.9
—
284.0
139.8
1,213.0
5,146.0
222.3
75.9
2,230.3
88.1
7,762.6
8,975.6
$
2017
477.2
88.2
106.0
85.1
499.0
454.0
123.1
1,832.6
4,445.5
189.8
66.6
2,167.0
88.0
6,956.9
8,789.5
—
—
28.4
5,724.7
1,240.5
(143.4)
6,850.2
29.1
5,860.1
1,267.7
(148.4)
7,008.5
Total Liabilities and Shareholders’ Equity
$15,639.7
$15,984.1
See notes to consolidated financial statements.
2017 ANNUAL REPORT 43
STATEMENTS OF CONSOLIDATED CASH FLOWS
The J. M. Smucker Company
Year Ended April 30,
2017
2016
2015
$ 592.3
$ 688.7
$ 344.9
211.7
207.3
133.2
22.0
—
(79.4)
4.8
—
(28.7)
8.9
(10.4)
8.9
2.1
(39.8)
—
7.9
18.2
1,059.0
—
—
(192.4)
—
40.6
0.5
(38.4)
(189.7)
170.0
—
(200.0)
(339.3)
(437.6)
0.8
(806.1)
(6.2)
57.0
109.8
$ 166.8
221.7
208.4
—
34.6
(25.3)
(95.2)
3.4
—
(8.6)
(21.9)
240.1
14.6
46.1
2.4
—
146.9
5.1
1,461.0
7.9
(16.0)
(201.4)
193.7
—
4.0
33.5
21.7
58.0
—
(800.0)
(316.6)
(441.1)
0.8
(1,498.9)
0.4
(15.8)
125.6
$ 109.8
157.5
109.7
1.2
23.5
—
7.7
(6.0)
163.3
(15.7)
21.8
25.3
74.1
(25.4)
(140.3)
53.5
(35.7)
(20.3)
739.1
(1,320.5)
—
(247.7)
—
—
2.6
(30.1)
(1,595.7)
(22.4)
5,382.5
(4,193.9)
(254.0)
(24.3)
(30.6)
857.3
(28.6)
(27.9)
153.5
$ 125.6
(Dollars in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation
Amortization
Impairment charges
Share-based compensation expense
Gain on divestiture
Deferred income tax (benefit) expense
Other noncash adjustments
Make-whole payments included in financing activities
Defined benefit pension contributions
Changes in assets and liabilities, net of effect from businesses acquired:
Trade receivables
Inventories
Other current assets
Accounts payable
Accrued liabilities
Proceeds from settlement of interest rate swaps – net
Income and other taxes
Other – net
Net Cash Provided by Operating Activities
Investing Activities
Businesses acquired, net of cash acquired
Equity investment in affiliate
Additions to property, plant, and equipment
Proceeds from divestiture
Proceeds from sale of investment
Proceeds from disposal of property, plant, and equipment
Other – net
Net Cash (Used for) Provided by Investing Activities
Financing Activities
Short-term borrowings (repayments) – net
Proceeds from long-term debt
Repayments of long-term debt, including make-whole payments
Quarterly dividends paid
Purchase of treasury shares
Other – net
Net Cash (Used for) Provided by Financing Activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
( ) Denotes use of cash
See notes to consolidated financial statements.
44 THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
The J. M. Smucker Company
(Dollars in millions)
Balance at May 1, 2014
Net income
Other comprehensive loss
Comprehensive Income
Purchase of treasury shares
Issuance of shares for acquisition
Stock plans (includes tax
benefit of $5.9)
Cash dividends declared
Other
Balance at April 30, 2015
Net income
Other comprehensive loss
Comprehensive Income
Purchase of treasury shares
Stock plans (includes tax
benefit of $2.7)
Cash dividends declared
Other
Balance at April 30, 2016
Net income
Other comprehensive income
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared
Other
Balance at April 30, 2017
Common
Shares
Outstanding
101,697,400
Common
Shares
$25.4
Additional
Capital
$3,965.8
(225,262)
17,892,565
212,630
(0.1)
4.5
0.1
(19.2)
2,031.0
30.1
119,577,333
29.9
6,007.7
Retained
Income
$1,091.0
344.9
(5.0)
(271.5)
(0.2)
1,159.2
688.7
(177.9)
(262.3)
(3,451,591)
181,152
(0.9)
0.1
116,306,894
29.1
30.7
(0.4)
5,860.1
(3,147,659)
280,318
(0.8)
0.1
(163.6)
28.1
113,439,553
$28.4
0.1
$5,724.7
(317.9)
1,267.7
592.3
(273.2)
(346.5)
0.2
$1,240.5
See notes to consolidated financial statements.
Amount
Due from
ESOP
Trust
$(1.0)
Accumulated
Other
Comprehensive
Loss
$ (51.6)
(58.2)
0.9
(0.1)
0.1
—
(109.8)
(38.6)
(148.4)
5.0
$ —
$(143.4)
Total
Shareholders’
Equity
$5,029.6
344.9
(58.2)
286.7
(24.3)
2,035.5
30.2
(271.5)
0.7
7,086.9
688.7
(38.6)
650.1
(441.1)
30.8
(317.9)
(0.3)
7,008.5
592.3
5.0
597.3
(437.6)
28.2
(346.5)
0.3
$6,850.2
2017 ANNUAL REPORT 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
(Dollars in millions, unless otherwise noted, except per share data)
NOTE 1
ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned
subsidiaries, and its majority-owned investments, if any. Intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires that we make certain estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Significant estimates in these consolidated financial statements include: estimates of future cash flows
associated with assets, potential asset impairments, useful lives and residual values of long-lived assets used in determining depreciation
and amortization, net realizable value of inventories, accruals for trade marketing and merchandising programs, income taxes, and the
determination of discount and other assumptions for defined benefit pension and other postretirement benefit expenses. Actual results could
differ from these estimates.
Cash and Cash Equivalents: We consider all short-term, highly-liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Revenue Recognition: We recognize revenue when all of the following criteria have been met: a valid customer order with a
determinable price has been received; title and risk of loss have transferred to the customer; there is no further significant obligation to
assist in the resale of the product; and collectibility is reasonably assured. Our products are shipped with FOB destination terms, with the
exception of certain export customers and those customers that elect to pick up.
Trade marketing and merchandising programs are classified as a reduction of sales. A provision for estimated returns and allowances is
recognized as a reduction of sales at the time revenue is recognized.
Trade Marketing and Merchandising Programs: In order to support our products, various promotional activities are conducted
through retail trade, distributors, or directly with consumers, including in-store display and product placement programs, feature price
discounts, coupons, and other similar activities. We regularly review and revise, when we deem necessary, estimates of costs for these
promotional programs based on estimates of what will be redeemed by retail trade, distributors, or consumers. These estimates are made
using various techniques, including historical data on performance of similar promotional programs. Differences between estimated
expenditures and actual performance are recognized as a change in estimate in a subsequent period. During 2017, 2016, and 2015,
subsequent period adjustments approximated less than 2 percent of both consolidated pre-tax income and cash provided by operating
activities. However, as total promotional expenditures, including amounts classified as a reduction of sales, represented 33 percent,
31 percent, and 29 percent of net sales in 2017, 2016, and 2015, respectively, the possibility exists that reported results could be different
if factors such as the level and success of the promotional programs or other conditions differ from expectations.
Shipping and Handling Costs: Transportation costs included in cost of products sold relate to the costs incurred to ship our products.
Distribution costs are included in selling, distribution, and administrative (“SD&A”) expenses and relate to the warehousing costs incurred
to store our products. Total distribution costs recorded within SD&A were $252.9, $236.1, and $168.5 in 2017, 2016, and 2015,
respectively.
Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $169.8, $170.3, and $107.0 in 2017, 2016,
and 2015, respectively.
Research and Development Costs: Research and development (“R&D”) costs are expensed as incurred and are included in SD&A in
the Statements of Consolidated Income. R&D costs include expenditures for new product and manufacturing process innovation, which are
comprised primarily of internal salaries and wages, consulting, and other supplies attributable to time spent on R&D activities. Other costs
include the depreciation and maintenance of research facilities. Total R&D expense was $58.1, $58.8, and $32.5 in 2017, 2016, and
2015, respectively.
Share-Based Payments: Share-based compensation expense, excluding stock options, is recognized on a straight-line basis over the
requisite service period, which includes a one-year performance period plus the defined forfeiture period, which is typically 4 years of
service or the attainment of a defined age and years of service. Compensation expense related to stock options is recognized ratably over
the service period for each vesting tranche from the grant date through the end of the requisite service period if it is probable that the
46 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
performance criteria will be met. The stock options vest over a period of 1 to 3 years, dependent on continued service of the option holder,
as well as the achievement of the performance objectives established on the grant date.
The following table summarizes amounts related to share-based payments.
Share-based compensation expense included in SD&A
Share-based compensation (benefit) expense included in other special project costs
Total share-based compensation expense
Related income tax benefit
Year Ended April 30,
2017
$22.3
(0.3) (A)
$22.0
$ 7.2
2016
$26.3
8.3
$34.6
$10.2
2015
$22.3
1.2
$23.5
$ 8.0
(A) During 2017, we concluded that a portion of the performance objectives were unachievable, and therefore reversed the life-to-date compensation cost
recognized. For additional information, see Note 12: Share-Based Payments.
As of April 30, 2017, total unrecognized share-based compensation cost related to nonvested share-based awards was $46.4. The weighted-
average period over which this amount is expected to be recognized is 3.5 years.
Prior to adoption of Accounting Standards Update (“ASU”) 2016-09, realized excess tax benefits were presented in the Statements of
Consolidated Cash Flows as a financing activity and were credited to additional capital in the Consolidated Balance Sheets. Realized
shortfall tax benefits, amounts which are less than those previously recognized in earnings, were first offset against the cumulative balance
of excess tax benefits, if any, and then charged directly to income tax expense. Upon adoption of ASU 2016-09, realized excess tax benefits
are presented in the Statements of Consolidated Cash Flows as an operating activity and are recognized within income taxes in the
Statements of Consolidated Income. For 2017, 2016, and 2015, the excess tax benefits realized upon exercise or vesting of share-based
compensation were $3.3, $2.7, and $5.9, respectively. For further discussion on share-based compensation expense, see Note 12: Share-
Based Payments.
Defined Contribution Plans: We offer employee savings plans for domestic and Canadian employees. Our contributions under these
plans are based on a specified percentage of employee contributions. Charges to operations for these plans in 2017, 2016, and 2015 were
$31.9, $25.9, and $21.1, respectively. For information on our defined benefit plans, see Note 9: Pensions and Other Postretirement Benefits.
Income Taxes: We account for income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in the applicable tax rate is recognized in income or expense in the period that the change is enacted. A valuation allowance is
established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A tax benefit is recognized when
it is more likely than not to be sustained.
We account for the financial statement recognition and measurement criteria of a tax position taken or expected to be taken in a tax return
under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. ASC 740 also
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. In accordance
with the requirements of ASC 740, uncertain tax positions have been classified in the Consolidated Balance Sheets as noncurrent, except
to the extent payment is expected within one year. We recognize net interest and penalties related to unrecognized tax benefits in income
tax expense.
Trade Receivables: In the normal course of business, we extend credit to customers. Trade receivables, less allowances, reflects the net
realizable value of receivables and approximates fair value. We evaluate our trade receivables and establish an allowance for doubtful
accounts based on a combination of factors. When aware that a specific customer has been impacted by circumstances such as bankruptcy
filings or deterioration in the customer’s operating results or financial position, potentially making it unable to meet its financial
obligations, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We
also record reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past
due, historical collection experience, and an evaluation of current and projected economic conditions at the balance sheet date. Trade
receivables are charged off against the allowance after we determine that the potential for recovery is remote. At April 30, 2017 and 2016,
the allowance for doubtful accounts was $1.6 and $1.1, respectively. We believe there is no concentration of risk with any single customer
whose failure or nonperformance would materially affect results other than as discussed in Note 5: Reportable Segments.
2017 ANNUAL REPORT 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Inventories: Inventories are stated at the lower of cost or market, with market being defined as net realizable value, less costs to sell. Cost
for all inventories is determined using the first-in, first-out method applied on a consistent basis.
The cost of finished products and work-in-process inventory includes materials, direct labor, and overhead. Work-in-process is included in
finished products in the Consolidated Balance Sheets and was $72.2 and $67.6 at April 30, 2017 and 2016, respectively.
Derivative Financial Instruments: We account for derivative instruments in accordance with FASB ASC 815, Derivatives and
Hedging, which requires all derivative instruments to be recognized in the financial statements and measured at fair value, regardless of the
purpose or intent for holding them.
We do not qualify commodity derivatives or instruments used to manage foreign currency exchange exposures for hedge accounting
treatment and, as a result, the derivative gains and losses are immediately recognized in earnings. Although we do not perform the
assessments required to achieve hedge accounting for derivative positions, we believe all of our derivatives are economic hedges of our risk
exposure. The exposures hedged have a high inverse correlation to price changes of the derivative instrument; thus, we would expect that
over time any gain or loss in the estimated fair value of our derivatives would generally be offset by an increase or decrease in the
estimated fair value of the underlying exposures.
We utilize derivative instruments to manage changes in the fair value and cash flows of our debt. Interest rate swaps mitigate the risk
associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge
accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and
included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to interest expense in the period
during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the swap is recognized at fair value
on the balance sheet, and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the derivative
are equal to changes in the fair value of the underlying debt and have no net impact on earnings.
Property, Plant, and Equipment: Property, plant, and equipment is recognized at cost and is depreciated on a straight-line basis over
the estimated useful life of the asset (3 to 20 years for machinery and equipment, 1 to 7 years for capitalized software costs, and
5 to 40 years for buildings, fixtures, and improvements).
We lease certain land, buildings, and equipment for varying periods of time, with renewal options. Rent expense in 2017, 2016, and 2015
totaled $101.0, $92.5, and $67.1, respectively. As of April 30, 2017, our minimum operating lease obligations were as follows: $33.9 in
2018, $28.1 in 2019, $21.5 in 2020, $19.0 in 2021, and $13.0 in 2022.
In accordance with FASB ASC 360, Property, Plant, and Equipment, long-lived assets, other than goodwill and other indefinite-lived
intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net undiscounted
cash flows we estimate to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount of the assets exceeds their estimated fair value. Assets to be disposed of by sale are recognized as
held for sale at the lower of carrying value or fair value less costs to sell.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase price paid over the estimated fair value of the net
assets of a business acquired. In accordance with FASB ASC 350, Intangibles – Goodwill and Other, goodwill and other indefinite-lived
intangible assets are not amortized but are reviewed at least annually for impairment. We conduct our annual test for impairment of
goodwill and other indefinite-lived intangible assets as of February 1 of each year. As of the annual impairment test, we had seven reporting
units. A discounted cash flow valuation technique was utilized to estimate the fair value of our reporting units and indefinite-lived
intangible assets. We also used a market-based approach to estimate the fair value of our reporting units. The discount rates utilized in the
cash flow analyses were developed using a weighted-average cost of capital methodology. In addition to the annual test, we test for
impairment if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived
intangible asset below its carrying amount. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful
lives, which are evaluated on an annual basis. For additional information, see Note 7: Goodwill and Other Intangible Assets.
Marketable Securities and Other Investments: We maintain funds for the payment of benefits associated with nonqualified
retirement plans. These funds include investments considered to be available-for-sale marketable securities. At April 30, 2017 and 2016,
the fair value of these investments was $47.3 and $48.8, respectively, and was included in other noncurrent assets in the Consolidated
Balance Sheets. Included in accumulated other comprehensive loss at April 30, 2017 and 2016, were unrealized pre-tax gains of $6.3 and
$5.7, respectively.
48 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Equity Method Investments: Investments in common stock of entities other than our subsidiaries are accounted for under the equity
method in accordance with FASB ASC 323, Investments – Equity Method and Joint Ventures. Under the equity method, the initial
investment is recorded at cost and the investment is subsequently adjusted for its proportionate share of earnings or losses, including
consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying
equity in net assets. The difference between the carrying amount of the investment and the underlying equity in net assets is primarily
attributable to goodwill and other intangible assets.
During 2017, we sold our 25 percent equity interest in Guilin Seamild Biologic Technology Development Co., Ltd. (“Seamild”), a
privately-owned manufacturer and marketer of oats products in China. We received proceeds from the sale of $40.6, net of transaction
costs, and recognized a pre-tax gain of $3.8 during 2017. The initial investment in Seamild was in 2012 for $35.9 and was included in other
noncurrent assets in the Consolidated Balance Sheets. The investment in Seamild did not have a material impact on International and
Foodservice or the consolidated financial statements for the years ended April 30, 2017 and 2016.
Additionally, we have a 20 percent equity interest in Mountain Country Foods, LLC, and a 44 percent equity interest in Numi, Inc. The
carrying amount of these investments is included in other noncurrent assets in the Consolidated Balance Sheets. The investments did not
have a material impact on the consolidated financial statements or the respective reportable segment to which they relate for the years
ended April 30, 2017 and 2016.
Foreign Currency Translation: Assets and liabilities of foreign subsidiaries are translated using the exchange rates in effect at the
balance sheet dates, while income and expenses are translated using average rates throughout the periods. Translation adjustments are
reported as a component of shareholders’ equity in accumulated other comprehensive loss. Included in accumulated other comprehensive
loss at April 30, 2017 and 2016, were foreign currency losses of $43.0 and $13.1, respectively.
Recently Issued Accounting Standards: In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic
715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires the service
cost component of the net periodic pension cost to be presented separately from the other components of the net periodic pension cost in
the income statement. Additionally, only the service cost component of the net periodic pension cost is eligible for capitalization.
ASU 2017-07 will be effective for us on May 1, 2019, with the option to early adopt at any time prior to the effective date, and will require
adoption on a retrospective basis. We do not anticipate that the adoption of this ASU will have a material impact on our financial statements
and disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill
Impairment, which eliminates Step 2 from the goodwill impairment test and requires an impairment charge to be recorded based on the
excess of a reporting unit’s carrying value over its fair value. ASU 2017-04 will be effective for us on May 1, 2020, with the option to early
adopt for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017, and will require adoption on a
prospective basis.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory, which
requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer
occurs rather than deferring such recognition until the asset is sold to an outside party. ASU 2016-16 is effective for us on May 1, 2018. It
will require adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the
beginning of the period of adoption. We do not anticipate that the adoption of this ASU will have a material impact on our financial
statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash
Payments, which will make changes to how certain cash receipts and cash payments are presented and classified in the statement of cash
flows. ASU 2016-15 will be effective for us on May 1, 2018, and it will require adoption on a retrospective basis unless it is impracticable
to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We do not
anticipate that the adoption of this ASU will have a material impact on our financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment
Accounting. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for
and presented in the financial statements, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. ASU 2016-09 is effective for us on May 1, 2017, but we have elected to early adopt, as
permitted. Effective May 1, 2016, we reclassified the excess tax benefits in historical periods on the Statements of Consolidated Cash
Flows from financing to operating activities. In addition, we have recorded the excess tax benefits or deficiencies within income taxes in
the Statements of Consolidated Income on a prospective basis, therefore the excess tax benefits or deficiencies are not presented in
2017 ANNUAL REPORT 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
additional capital on the Statements of Consolidated Shareholders’ Equity. The impact of adopting ASU 2016-09 on May 1, 2016, had an
immaterial impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize a right-of-use asset and lease
liability for all leases with terms of more than 12 months. ASU 2016-02 will be effective for us on May 1, 2019, with the option to early
adopt at any time prior to the effective date, and will require a modified retrospective application for leases existing at, or entered into after,
the beginning of the earliest comparative period presented and exclude any leases that expired before the date of initial application. We are
currently evaluating the impact the application of ASU 2016-02 will have on our financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires either
retrospective application to each prior reporting period presented or retrospective application with the cumulative effect of initially
applying the standard recognized at the date of adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers (Topic 606) Deferral of the Effective Date, which extends the standard effective date by one year. As a result of this issuance, the
standard will be effective for us on May 1, 2018. We have performed a detailed review of the new guidance as compared to our current
accounting policies, and a review of customer contracts is in process. To date, we have not identified any accounting changes that would
materially impact our results of operations or financial position. During the first half of 2018, we plan to finalize our review and determine
our method of adoption.
Risks and Uncertainties: The raw materials we use are primarily commodities, agricultural-based products, and packaging materials.
The principal packaging materials we use are plastic, glass, metal cans, caps, carton board, and corrugate. Green coffee, grains, peanuts,
edible oils, sweeteners, fruit, and other ingredients are obtained from various suppliers. The availability, quality, and cost of many of these
commodities have fluctuated, and may continue to fluctuate over time. Green coffee is sourced solely from foreign countries and its supply
and price are subject to high volatility due to factors such as weather, global supply and demand, plant disease, speculative influences, and
political and economic conditions in the source countries. Raw materials are generally available from numerous sources, although we have
elected to source certain plastic packaging materials and finished goods, such as our Pup-Peroni® dog snacks, from single sources of supply
pursuant to long-term contracts. While availability may vary from year to year, we believe that we will continue to be able to obtain
adequate supplies and that alternatives to single-sourced materials are available. We have not historically encountered significant shortages
of key raw materials. We consider our relationships with key material suppliers to be in good standing.
We have consolidated our production capacity for certain products, including substantially all of our coffee, Milk-Bone® dog snacks, fruit
spreads, syrups, toppings, and Uncrustables frozen sandwiches, into single manufacturing sites. Although steps are taken at all of our
manufacturing sites to reduce the likelihood of a production disruption, an interruption at a single manufacturing site would result in a
reduction or elimination of the availability of some of our products for a period of time.
Of our total employees, 27 percent are covered by union contracts at 11 manufacturing locations. The contracts vary in term, with five
contracts expiring in 2018, representing 8 percent of our total employees.
We insure our business and assets in each country against insurable risks, to the extent that we deem appropriate, based upon an analysis of
the relative risks and costs.
NOTE 2
ACQUISITION
On March 23, 2015, we completed the acquisition of Big Heart Pet Brands (“Big Heart”), a leading producer, distributor, and marketer of
premium-quality, branded pet food and pet snacks in the U.S., through the acquisition of Blue Acquisition Group, Inc. (“BAG”), Big
Heart’s parent company. As a result of the acquisition, the assets and liabilities of BAG are now held by the Company.
The total consideration paid in connection with the acquisition was $5.9 billion, which included the issuance of 17.9 million of our
common shares to BAG’s shareholders, valued at $2.0 billion based on the average stock price of our common shares on March 23, 2015.
After the closing of the transaction, we had approximately 120.0 million common shares outstanding. We assumed $2.6 billion in debt and
paid an additional $1.2 billion in cash, net of a working capital adjustment. As part of the transaction, new debt of $5.5 billion was
borrowed, as discussed in Note 8: Debt and Financing Arrangements.
50 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The final Big Heart purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair
values at the date of acquisition. We determined the estimated fair values based on independent appraisals, discounted cash flow analyses,
quoted market prices, and estimates made by management. The purchase price allocation included total intangible assets of $3.8 billion.
The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired and, as a result, the
excess was allocated to goodwill. We recognized a total of $3.0 billion of goodwill, representing the value we expect to achieve through the
implementation of operational synergies and growth opportunities across our segments. Goodwill was allocated across all reportable
segments based on the synergies anticipated to be achieved by each individual reporting unit as a result of the acquisition. Of the total
goodwill, $59.7 remains deductible for tax purposes at April 30, 2017.
NOTE 3
INTEGRATION AND RESTRUCTURING COSTS
Integration and restructuring costs primarily consist of employee-related costs, outside service and consulting costs, and other costs related
to acquisition or restructuring activities. Employee-related costs include severance, retention bonuses, and relocation costs. Severance costs
and retention bonuses are recognized over the estimated future service period of the affected employees, and the remainder are expensed as
incurred. Other costs include professional fees, information systems costs, and other miscellaneous expenditures associated with the
integration or restructuring activities, which are expensed as incurred. These one-time costs are not allocated to segment profit, and the
majority of these costs are reported in other special project costs in the Statements of Consolidated Income. The obligation related to
employee separation costs is included in other current liabilities in the Consolidated Balance Sheets.
Integration Costs: Total one-time costs related to the Big Heart acquisition are anticipated to be approximately $290.0, of which
approximately $45.0 are expected to be noncash charges. Of the total anticipated one-time costs, we expect to incur $105.0, $115.0, and
$70.0 in employee-related costs, outside service and consulting costs, and other costs, respectively. These costs are anticipated to be
incurred through 2018.
The following table summarizes our one-time costs incurred in relation to the Big Heart acquisition.
Employee-related costs
Outside service and consulting costs
Other costs
Total one-time costs
2017
$16.3
33.9
13.9
$64.1
2016
$ 52.4
56.0
36.8
$145.2
Total Costs
Incurred to Date
at April 30, 2017
$ 82.1
106.0
57.2
$ 245.3
2015
$13.4
16.1
6.5
$36.0
Noncash charges of $3.2, $18.9, and $5.7 were included in the total one-time costs incurred in 2017, 2016, and 2015, respectively, and
primarily consisted of share-based compensation and accelerated depreciation. Noncash charges included in total one-time costs incurred to
date were $27.8.
The obligation related to severance costs and retention bonuses was $5.3 and $13.4 at April 30, 2017 and 2016, respectively.
Restructuring Costs: An organization optimization program was approved by the Board of Directors during the fourth quarter of 2016
as part of our ongoing efforts to reduce costs and optimize the organization. Total restructuring costs are expected to be approximately
$40.0, of which the majority represents employee-related costs, while the remainder primarily consists of site preparation, equipment
relocation, and production start-up costs at the impacted facilities. Included in the total restructuring costs are approximately $4.0 of
noncash charges related to accelerated depreciation.
As part of this program, we exited two leased facilities in Livermore, California, and consolidated all ancient grains and pasta production
into our facility in Chico, California, during 2017. Additionally, we will discontinue the production of coffee at our Harahan, Louisiana,
facility and consolidate all related coffee production into one of our facilities in New Orleans, Louisiana, which we expect to complete by
December 31, 2017. We have also identified additional opportunities to further optimize the overall organization, which we expect to
achieve in 2018. Upon completion of these initiatives, the organization optimization program will result in total headcount reductions of
approximately 275 full-time positions. We anticipate the remaining costs associated with the program to be incurred through 2018.
2017 ANNUAL REPORT 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table summarizes our one-time costs incurred in relation to the organization optimization program.
Employee-related costs
Outside service and consulting costs
Other costs
Total one-time costs
2017
$12.4
1.8
4.4
$18.6
Total Costs
Incurred to Date
at April 30, 2017
$13.7
1.8
4.4
$19.9
2016
$1.3
—
—
$1.3
Total cumulative noncash charges incurred to date were $2.1, all of which were incurred in 2017. The obligation related to severance costs
and retention bonuses was $3.3 and $1.3 at April 30, 2017 and 2016, respectively.
During 2015, we completed a multi-year restructuring initiative that was focused on the coffee, fruit spreads, and Canadian pickle and
condiment operations in an effort to achieve enhanced long-term strength and profitability of our leading brands. We incurred total
restructuring costs of $263.6 through April 30, 2015, of which $15.4 was incurred during the year ended April 30, 2015.
NOTE 4
DIVESTITURE
On December 31, 2015, we sold our U.S. canned milk brands and operations to Eagle Family Foods Group LLC, a subsidiary of funds
affiliated with Kelso & Company. The transaction included canned milk products that were primarily sold in U.S. retail and foodservice
channels under the Eagle Brand® and Magnolia® brands, along with other branded and private label trade names, with annual net sales of
approximately $200.0. Our manufacturing facilities in El Paso, Texas, and Seneca, Missouri, were included in the transaction, but our
canned milk business in Canada was excluded from the divestiture.
The operating results for this business were primarily included in the U.S. Retail Consumer Foods segment prior to the sale on
December 31, 2015. We received proceeds from the divestiture of $193.7, which were net of transaction costs and a working capital
adjustment. Upon completion of the transaction, we recognized a pre-tax gain of $25.3 in 2016.
NOTE 5
REPORTABLE SEGMENTS
We operate in one industry: the manufacturing and marketing of food and beverage products. We have three reportable segments: U.S.
Retail Coffee, U.S. Retail Consumer Foods, and U.S. Retail Pet Foods. Within our segment results, International and Foodservice
represents a combination of the strategic business areas not included in the U.S. retail market segments. The U.S. Retail Coffee segment
primarily includes the domestic sales of Folgers®, Dunkin’ Donuts®, and Café Bustelo® branded coffee; the U.S. Retail Consumer Foods
segment primarily includes domestic sales of Jif ®, Smucker’s®, Crisco®, and Pillsbury® branded products; and the U.S. Retail Pet Foods
segment primarily includes domestic sales of Meow Mix®, Milk-Bone, Natural Balance®, Kibbles ’n Bits®, 9Lives®, Pup-Peroni, and
Nature’s Recipe® branded products. International and Foodservice is comprised of products distributed domestically and in foreign
countries through retail channels and foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health
care operators).
Segment profit represents net sales, less direct and allocable operating expenses, and is consistent with the way in which we manage our
segments. However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment
profit set forth below as segment profit excludes certain expenses such as corporate administrative expenses, unallocated gains and losses
on commodity and foreign currency exchange derivative activities, as well as amortization expense and impairment charges related to
intangible assets. Effective May 1, 2016, the segment profit calculation was revised to exclude both amortization expense and impairment
charges related to intangible assets as we believe that excluding these items from segment operating results is more reflective of our
operating performance and the way in which we manage our business. Prior year segment results have been modified to conform to the
revised segment profit presentation excluding amortization expense and impairment charges related to intangible assets.
Consistent with prior periods, commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative
gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and
52 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge
without experiencing any mark-to-market volatility. We would expect that any gain or loss in the estimated fair value of the derivatives
would generally be offset by a change in the estimated fair value of the underlying exposures.
Net sales:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Total net sales
Segment profit:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Total segment profit
Amortization
Impairment charges
Interest expense – net
Other debt costs
Unallocated derivative (losses) gains
Cost of products sold – special project costs (A)
Other special project costs (A)
Corporate administrative expenses
Other income – net
Income before income taxes
Assets:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Unallocated (B)
Total assets
Depreciation, amortization, and impairment charges:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Unallocated (C)
Total depreciation, amortization, and impairment charges
Additions to property, plant, and equipment:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Foodservice
Total additions to property, plant, and equipment
Year Ended April 30,
2017
2016
2015
$ 2,108.6
2,085.4
2,135.9
1,062.4
$ 7,392.3
$ 2,239.2
2,269.7
2,250.4
1,051.9
$ 7,811.2
$ 2,076.1
2,330.8
239.1
1,046.7
$ 5,692.7
$
682.4
458.2
481.0
185.1
$ 1,806.7
(207.3)
(133.2)
(163.1)
—
(27.2)
(5.7)
(76.9)
(324.9)
10.0
878.4
$
$
722.6
467.5
493.9
179.0
$ 1,863.0
(208.4)
—
(171.1)
—
12.0
(12.2)
(135.9)
(373.2)
3.7
977.9
$
$
623.2
466.0
(6.4)
161.6
$ 1,244.4
(109.7)
(1.2)
(79.9)
(173.3)
(24.5)
(6.2)
(56.6)
(274.2)
4.2
523.0
$
$ 4,909.9
3,157.2
6,232.9
1,053.4
286.3
$15,639.7
$
$
$
$
95.7
73.2
280.8
61.9
40.6
552.2
40.9
49.7
70.5
31.3
192.4
$ 5,002.0
3,288.5
6,321.6
1,168.6
203.4
$15,984.1
$
$
$
$
104.0
60.7
164.9
66.2
34.3
430.1
51.4
90.3
11.9
47.8
201.4
$ 4,852.4
3,063.1
7,556.4
1,105.1
229.3
$16,806.3
$
$
$
$
102.7
59.4
14.3
60.7
31.3
268.4
56.7
117.7
19.4
53.9
247.7
(A) Special project costs include merger and integration and restructuring costs. For more information, see Note 3: Integration and Restructuring Costs.
(B) Primarily represents unallocated cash and cash equivalents and corporate-held investments.
(C) Primarily represents unallocated corporate administrative expense, mainly depreciation and software amortization.
2017 ANNUAL REPORT 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table presents certain geographical information.
Net sales:
United States
International:
Canada
All other international
Total international
Total net sales
Assets:
United States
International:
Canada
All other international
Total international
Total assets
Long-lived assets (excluding goodwill and other intangible assets):
United States
International:
Canada
All other international
Total international
Total long-lived assets (excluding goodwill and other intangible assets)
The following table presents product category sales as a percentage of consolidated net sales.
Coffee
Pet food
Pet snacks
Peanut butter
Fruit spreads
Shortening and oils
Baking mixes and frostings
Frozen handheld
Flour and baking ingredients
Juices and beverages
Portion control
Canned milk
Other
Total product sales
Year Ended April 30,
2017
2016
2015
$ 6,865.1
$ 7,300.8
$ 5,188.5
$
414.3
112.9
$
527.2
$ 7,392.3
$
416.0
94.4
$
510.4
$ 7,811.2
$
413.8
90.4
$
504.2
$ 5,692.7
$15,214.3
$15,501.1
$16,332.0
$
380.9
44.5
$
425.4
$15,639.7
$
396.2
86.8
$
483.0
$15,984.1
$
360.8
113.5
$
474.3
$16,806.3
$ 1,757.1
$ 1,773.9
$ 1,805.3
$
13.4
0.4
$
13.8
$ 1,770.9
$
10.7
40.6
$
51.3
$ 1,825.2
$
14.3
40.9
$
55.2
$ 1,860.5
Year Ended April 30,
2017
2016
2015
34%
19
10
10
5
4
3
3
2
2
2
1
5
100%
34%
19
10
9
4
4
3
3
2
2
2
3
5
100%
44%
3
1
13
6
6
5
3
4
3
2
4
6
100%
Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to 30 percent of net sales in both 2017 and 2016, and 28 percent of net sales in
2015. These sales are primarily included in our U.S. retail market segments. No other customer exceeded 10 percent of net sales for any
year. Trade receivables at April 30, 2017 and 2016, included amounts due from Wal-Mart Stores, Inc. and subsidiaries of $138.2 and
$118.1, respectively.
54 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 6
EARNINGS PER SHARE
The following table sets forth the computation of net income per common share and net income per common share – assuming dilution
under the two-class method.
Net income
Less: Net income allocated to participating securities
Net income allocated to common stockholders
Weighted-average common shares outstanding
Add: Dilutive effect of stock options
Year Ended April 30,
2017
$ 592.3
2.8
$ 589.5
2016
$ 688.7
3.0
$ 685.7
2015
$ 344.9
2.2
$ 342.7
115,471,395
118,918,701
103,038,271
107,029
41,113
5,283
Weighted-average common shares outstanding – assuming dilution
115,578,424
118,959,814
103,043,554
Net income per common share
Net income per common share – assuming dilution
$
$
5.11
5.10
$ 5.77
$ 5.76
$ 3.33
$ 3.33
NOTE 7
GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of changes in goodwill during the years ended April 30, 2017 and 2016, by reportable segment is as follows:
Balance at May 1, 2015
Acquisitions (A)
Divestiture
Other (B)
Balance at April 30, 2016
Other (B)
Balance at April 30, 2017
U.S. Retail
Coffee
$1,742.9
348.0
—
—
$2,090.9
—
$2,090.9
U.S. Retail
Consumer
Foods
$1,140.8
494.7
(33.6)
(1.0)
$1,600.9
(1.9)
$1,599.0
U.S. Retail
Pet Foods
$2,812.1
(842.6)
—
—
$1,969.5
—
$1,969.5
International
and
Foodservice
$315.8
130.7
(14.2)
(2.5)
$429.8
(12.1)
$417.7
Total
$6,011.6
130.8
(47.8)
(3.5)
$6,091.1
(14.0)
$6,077.1
(A) As a result of the Big Heart acquisition in 2015, we recognized a total of $3.0 billion of goodwill, representing the value we expect to achieve through
the implementation of operational synergies and growth opportunities across our segments. The purchase price allocation was finalized in 2016 and
included the allocation of goodwill across all reportable segments based on the synergies anticipated to be achieved by each individual reporting unit.
For further discussion on the Big Heart acquisition, see Note 2: Acquisition. Additionally, the purchase price allocation was finalized for the Sahale
Snacks, Inc. acquisition in 2016, resulting in an immaterial adjustment to goodwill.
(B) The amounts classified as other represent foreign currency exchange adjustments for the years ended April 30, 2017 and 2016.
2017 ANNUAL REPORT 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table summarizes our other intangible assets and related accumulated amortization and impairment charges, including
foreign currency exchange adjustments.
April 30, 2017
Accumulated
Amortization/
Impairment
Charges/
Foreign
Currency
Exchange
April 30, 2016
Accumulated
Amortization/
Impairment
Charges/
Foreign
Currency
Exchange
Net
Acquisition
Cost
Net
$ 802.1
101.4
112.7
$1,016.2
$2,718.0
67.1
443.7
$3,228.8
$3,520.1
168.5
525.4
$4,214.0
$639.9
88.4
78.7
$807.0
$2,880.2
80.1
446.7
$3,407.0
Acquisition
Cost
$3,520.1
168.5
556.4
$4,245.0
$3,078.1
$7,323.1
$ 157.0
$1,173.2
$2,921.1
$6,149.9
$3,109.1
$7,323.1
$ 21.7
$828.7
$3,087.4
$6,494.4
Finite-lived intangible assets subject to amortization:
Customer and contractual relationships
Patents and technology
Trademarks
Total intangible assets subject to amortization
Indefinite-lived intangible assets not subject to
amortization:
Trademarks
Total other intangible assets
Amortization expense for finite-lived intangible assets was $205.9, $204.7, and $110.3 in 2017, 2016, and 2015, respectively. The
weighted-average useful lives of the customer and contractual relationships, patents and technology, and trademarks are 23, 14, and
16 years, respectively. The weighted-average useful life of total finite-lived intangible assets is 22 years. Based on the carrying amount of
intangible assets subject to amortization at April 30, 2017, the estimated amortization expense is $206.2 for 2018, $205.0 for 2019, $200.4
for 2020, $198.7 for 2021, and $193.3 for 2022. During 2016, we began amortizing the Crisco trademark that was previously an indefinite-
lived intangible. The trademark was included in the annual impairment review performed as of February 1, 2016, and was not impaired.
The annual amortization expense related to the Crisco trademark is approximately $8.0.
We review goodwill and other indefinite-lived intangible assets at least annually for impairment and more often if indicators of impairment
exist. Prior to the annual impairment review performed as of February 1, 2017, we completed interim impairment analyses on the goodwill
of the Pet Foods reporting unit and the indefinite-lived trademarks included within the U.S. Retail Pet Foods segment as a result of a
decline in current year actual and forecasted net sales for the U.S. Retail Pet Foods segment, as well as an increase in our weighted-average
cost of capital, which reflected the rising market-based interest rates throughout the year. As a result, we did not recognize a goodwill
impairment charge related to the Pet Foods reporting unit; however, we did recognize an impairment charge of $75.7 related to certain
indefinite-lived trademarks within the U.S. Retail Pet Foods segment, to the extent that carrying value exceeded the estimated fair value.
As of February 1, 2017, we completed the annual impairment review, in which goodwill impairment was tested at the reporting unit level
for our seven reporting units. As part of our annual evaluation, we did not recognize any impairment charges related to our goodwill. The
estimated fair value of each reporting unit and material indefinite-lived intangible asset was substantially in excess of its carrying value as
of the annual test date, with the exception of the Pet Foods reporting unit and all indefinite-lived trademarks within the U.S. Retail Pet
Foods segment. As a result of the annual impairment review, an immaterial impairment charge was recognized related to an indefinite-lived
trademark, to the extent that the carrying value exceeded the estimated fair value.
Subsequent to the February 1, 2017 annual review, we updated our financial plan for 2018, which resulted in decreased projections in the
U.S. Retail Pet Foods segment as compared to the projections used in the annual evaluation. As a result of the decline in projections, in
conjunction with the narrow difference between estimated fair value and carrying value as of our February 1, 2017 annual test, we
performed an additional impairment analysis on the goodwill of the Pet Foods reporting unit and the indefinite-lived trademarks included
within the U.S. Retail Pet Foods segment. Goodwill impairment was not recognized related to the Pet Foods reporting unit at
April 30, 2017; however, additional sensitivity analyses were performed for the Pet Foods reporting unit, assuming a hypothetical
50-basis-point decrease in the expected long-term growth rate or a hypothetical 50-basis-point increase in the weighted-average cost of
capital. Both scenarios independently yielded an estimated fair value for the Pet Foods reporting unit at or slightly below carrying value.
The additional impairment analysis did result in total incremental impairment charges of $52.8 related to certain indefinite-lived trademarks
within the U.S. Retail Pet Foods segment, to the extent that the carrying value exceeded the estimated fair value at April 30, 2017. These
indefinite-lived trademarks remain susceptible to future impairment charges as the carrying value approximates estimated fair value at
April 30, 2017.
During 2017, we recognized total impairment charges of $133.2 related to certain indefinite-lived trademarks with a total estimated fair
value of $1.0 billion at April 30, 2017. These charges were included as a noncash charge in our Statement of Consolidated Income.
56 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 8
DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
1.75% Senior Notes due March 15, 2018
2.50% Senior Notes due March 15, 2020
3.50% Senior Notes due October 15, 2021
3.00% Senior Notes due March 15, 2022
3.50% Senior Notes due March 15, 2025
4.25% Senior Notes due March 15, 2035
4.38% Senior Notes due March 15, 2045
Term Loan Credit Agreement due March 23, 2020
Total long-term debt
Current portion of long-term debt
Total long-term debt, less current portion
April 30, 2017
April 30, 2016
Principal
Outstanding
$ 500.0
500.0
750.0
400.0
1,000.0
650.0
600.0
550.0
$4,950.0
500.0
$4,450.0
Carrying
Amount (A)
$ 499.0
496.6
782.6
396.6
993.6
642.6
584.9
548.6
$4,944.5
499.0
$4,445.5
Principal
Outstanding
$ 500.0
500.0
750.0
400.0
1,000.0
650.0
600.0
750.0
$5,150.0
—
$5,150.0
Carrying
Amount (A)
$ 498.0
495.5
789.4
395.9
992.7
642.2
584.4
747.9
$5,146.0
—
$5,146.0
(A) Represents the carrying amount included in the Consolidated Balance Sheets, which includes the impact of terminated interest rate swaps, offering
discounts, and capitalized debt issuance costs.
In March 2015, we entered into a senior unsecured delayed-draw Term Loan Credit Agreement (“Term Loan”) with a syndicate of banks
and an available commitment amount of $1.8 billion. Borrowings under the Term Loan bear interest on the prevailing U.S. Prime Rate or
London Interbank Offered Rate (“LIBOR”), based on our election, and is payable either on a quarterly basis or at the end of the borrowing
term. The weighted-average interest rate on the Term Loan at April 30, 2017, was 2.24 percent. The Term Loan requires quarterly
amortization payments of 2.50 percent of the original principal amount. Voluntary prepayments are permitted without premium or penalty
and are applied to the schedule of required quarterly minimum payment obligations in direct order of maturity. As of April 30, 2017, we
have prepaid $1.2 billion on the Term Loan to date, including $200.0 in 2017. No additional payments are required until final maturity of
the loan agreement on March 23, 2020.
Also in March 2015, we completed an offering of $3.7 billion in Senior Notes due beginning March 15, 2018 through March 15, 2045. The
proceeds from the offering, along with the Term Loan, were used to partially finance the Big Heart acquisition, pay off the debt assumed as
part of the acquisition, and prepay our privately placed Senior Notes.
All of our Senior Notes outstanding at April 30, 2017, are unsecured and fully and unconditionally guaranteed, as further described in Note
16: Guarantor and Non-Guarantor Financial Information. Interest is paid semiannually and there are no required scheduled principal
payments on our Senior Notes. We may prepay at any time all or part of the Senior Notes at 100 percent of the principal amount thereof,
together with the accrued and unpaid interest, and any applicable make-whole amount.
During 2014, we entered into an interest rate swap designated as a fair value hedge of the 3.50 percent Senior Notes due October 15, 2021,
which was subsequently terminated in 2015. At April 30, 2017, the remaining benefit of $36.3 was recorded as an increase in the long-term
debt balance and will be recognized ratably as a reduction to future interest expense over the remaining life of the related debt. For
additional information, see Note 10: Derivative Financial Instruments.
We have available a $1.5 billion revolving credit facility with a group of 11 banks that matures in September 2018. Borrowings under the
revolving credit facility bear interest based on the prevailing U.S. Prime Rate, Canadian Base Rate, LIBOR, or Canadian Dealer Offered
Rate, based on our election. Interest is payable either on a quarterly basis or at the end of the borrowing term. At April 30, 2017 and 2016,
we did not have a balance outstanding under the revolving credit facility.
We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $1.0 billion
at any time. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving
credit facility by the amount of commercial paper outstanding. Commercial paper will be used as a continuing source of short-term
financing for general corporate purposes. As of April 30, 2017 and 2016, we had $454.0 and $284.0 of short-term borrowings outstanding,
respectively, all of which were issued under our commercial paper program at a weighted-average interest rate of 1.15 percent and
0.65 percent, respectively.
2017 ANNUAL REPORT 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Interest paid totaled $162.2, $167.3, and $92.3 in 2017, 2016, and 2015, respectively. This differs from interest expense due to the timing of
payments, effect of interest rate swaps, amortization of debt issuance costs, and capitalized interest.
Our debt instruments contain certain financial covenant restrictions, including a leverage ratio and an interest coverage ratio. We are in
compliance with all covenants.
NOTE 9
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We have defined benefit pension plans covering certain U.S. and Canadian employees, including the acquired pension and other
postretirement plans of Big Heart. Pension benefits are based on the employee’s years of service and compensation levels. Our plans are
funded in conformity with the funding requirements of applicable government regulations.
In addition to providing pension benefits, we sponsor several unfunded postretirement plans that provide health care and life insurance
benefits to certain retired U.S. and Canadian employees. These plans are contributory, with retiree contributions adjusted periodically, and
contain other cost-sharing features, such as deductibles and coinsurance. Covered employees generally are eligible for these benefits when
they reach age 55 and have attained 10 years of credited service.
The following table summarizes the components of net periodic benefit cost and the change in accumulated other comprehensive loss
related to the defined benefit pension and other postretirement plans.
Year Ended April 30,
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Curtailment gain
Settlement (gain) loss
Net periodic benefit cost
Other changes in plan assets and benefit liabilities recognized in
accumulated other comprehensive loss before income taxes:
Prior service credit (cost) arising during the year
Net actuarial gain (loss) arising during the year
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Curtailment loss (gain)
Settlement (gain) loss
Foreign currency translation
Net change for year
Weighted-average assumptions used in determining net periodic
benefit costs:
U.S. plans:
Discount rate
Expected return on plan assets
Rate of compensation increase
Canadian plans:
Discount rate
Expected return on plan assets
Rate of compensation increase
58 THE J. M. SMUCKER COMPANY
Defined Benefit Pension Plans
Other Postretirement Benefits
2017
$ 12.7
25.3
(29.3)
1.1
13.8
—
(0.7)
$ 22.9
$ 2.1
1.5
1.1
13.8
28.8
(0.7)
2.5
$ 49.1
2016
$ 17.8
27.7
(32.9)
0.7
10.9
(6.5)
—
$ 17.7
$ (5.3)
(43.3)
0.7
10.9
(6.5)
—
0.8
$(42.7)
2015
$ 9.0
23.2
(25.6)
1.0
10.0
—
3.5
$ 21.1
$ (0.3)
(23.7)
1.0
10.0
—
3.5
2.7
$ (6.8)
2017
$ 2.3
2.6
—
(1.5)
(0.2)
—
—
$ 3.2
$ 3.0
2.3
(1.5)
(0.2)
0.1
—
—
$ 3.7
2016
$ 2.3
2.8
—
(1.1)
(0.3)
(0.3)
—
$ 3.4
$ —
—
(1.1)
(0.3)
(0.3)
—
—
$ (1.7)
2015
$ 2.3
2.4
—
(1.1)
(0.1)
—
—
$ 3.5
$ —
1.6
(1.1)
(0.1)
—
—
—
$ 0.4
3.85%
6.27
3.96
3.60%
5.25
3.00
4.06%
6.58
4.06
3.51%
5.65
3.00
4.42%
6.72
4.13
4.11%
5.64
3.00
3.80%
—
—
3.50%
—
—
4.04%
—
—
3.50%
—
—
4.27%
—
—
4.10%
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
We amortize gains and losses for our postretirement plans over the average expected future period of vested service. For plans that consist
of less than 5 percent of participants that are active, average life expectancy is used instead of the average expected useful service period.
We use a measurement date of April 30 to determine defined benefit pension and other postretirement benefit plans’ assets and benefit
obligations. The following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheets.
April 30,
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Amendments
Actuarial loss (gain)
Participant contributions
Benefits paid
Foreign currency translation adjustments
Curtailment
Settlement
Acquisition
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Participant contributions
Benefits paid
Settlement
Foreign currency translation adjustments
Fair value of plan assets at end of year
Funded status of the plans
Defined benefit pensions
Other noncurrent assets
Accrued compensation
Other postretirement benefits
Net benefit liability
Defined Benefit Pension Plans
Other Postretirement Benefits
2017
2016
2017
2016
$ 745.9
12.7
25.3
—
6.7
—
(43.8)
(7.8)
(30.9)
(30.8)
—
$ 677.3
$ 505.6
37.4
28.7
—
(43.8)
(30.8)
(7.9)
$ 489.2
$ (188.1)
$ (189.8)
5.7
(4.0)
—
$ (188.1)
$ 740.4
17.8
27.7
5.3
20.3
0.1
(45.7)
(4.1)
(10.1)
(3.0)
(2.8)
$ 745.9
$ 550.0
(0.2)
8.6
0.1
(45.7)
(3.0)
(4.2)
$ 505.6
$ (240.3)
$ (222.3)
—
(18.0)
—
$ (240.3)
$ 75.9
2.3
2.6
(3.0)
(2.3)
—
(3.9)
(0.8)
(0.1)
—
—
$ 70.7
$ —
—
3.9
—
(3.9)
—
—
$ —
$(70.7)
$ —
—
(4.1)
(66.6)
$(70.7)
$ 75.8
2.3
2.8
—
0.3
0.6
(5.2)
(0.4)
(0.3)
—
—
$ 75.9
$ —
—
4.6
0.6
(5.2)
—
—
$ —
$(75.9)
$ —
—
—
(75.9)
$(75.9)
The following table summarizes amounts recognized in accumulated other comprehensive loss in the Consolidated Balance Sheets, before
income taxes.
April 30,
Net actuarial (loss) gain
Prior service (cost) credit
Total recognized in accumulated other comprehensive loss
2017
$ (166.4)
(5.6)
$ (172.0)
2016
$ (212.3)
(8.8)
$ (221.1)
2017
$ 8.5
10.7
$ 19.2
2016
$ 6.3
9.2
$ 15.5
Defined Benefit Pension Plans
Other Postretirement Benefits
During 2018, we expect to recognize amortization of net actuarial losses and prior service credit of $11.4 and $0.4, respectively, in net
periodic benefit cost.
During 2017, we announced our plans to harmonize our retirement benefits and, as a result, will freeze our non-union U.S. defined benefit
pension plans. The amendments resulted in an immaterial net settlement loss and a decrease in accumulated other comprehensive loss
of $25.2 during 2017. We anticipate future savings to be realized as a result of the plan changes, which will be complete by
December 31, 2017.
2017 ANNUAL REPORT 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
As of April 30, 2017, we changed the approach utilized to estimate the service and interest cost components of net periodic benefit cost for
our defined benefit pension and other postretirement benefit plans. Historically, we estimated the service and interest cost components
using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the
period. As of April 30, 2017, we utilized a spot rate approach for the estimation of service and interest cost for our plans by applying
specific spot rates along the yield curve to the relevant projected cash flows, to provide a better estimate of service and interest costs. This
approach does not affect the measurement of the total benefit obligations, and will be accounted for as a change in estimate that is effected
by a change in accounting principle. As such, this change in methodology will be accounted for on a prospective basis beginning
May 1, 2017. Service and interest costs on the obligation are expected to be $4.3 lower in 2018, primarily related to the defined benefit
pension plans, as a result of using the spot rate approach compared to the historical approach.
The following table sets forth the weighted-average assumptions used in determining the benefit obligations.
April 30,
U.S. plans:
Discount rate
Rate of compensation increase
Canadian plans:
Discount rate
Rate of compensation increase
Defined Benefit Pension Plans
Other Postretirement Benefits
2017
2016
2017
2016
3.95%
4.15
3.22%
3.00
3.76%
3.96
3.60%
3.00
3.86%
—
3.16%
—
3.80%
—
3.50%
—
For 2018, the assumed health care trend rates are 7.0 percent and 4.5 percent for the U.S. and Canadian plans, respectively. The rate for
participants under age 65 is assumed to decrease to 5.0 percent in calendar 2026 for the U.S. plan and stay consistent at 4.5 percent through
calendar 2017 for the Canadian plan. The health care cost trend rate assumption impacts the amount of the other postretirement benefits
obligation and periodic other postretirement benefits cost reported. A one percentage point annual change in the assumed health care cost
trend rate would have the following effect as of April 30, 2017:
Effect on total service and interest cost components
Effect on benefit obligation
One Percentage Point
Increase
$ 0.1
1.4
Decrease
$ 0.1
1.4
The following table sets forth selective information pertaining to our Canadian pension and other postretirement benefit plans, which is
included in the consolidated information presented on pages 58 and 59.
Year Ended April 30,
Benefit obligation at end of year
Fair value of plan assets at end of year
Funded status of the plans
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net periodic benefit (credit) cost
Changes in plan assets:
Company contributions
Participant contributions
Benefits paid
Actual return on plan assets
Foreign currency translation
60 THE J. M. SMUCKER COMPANY
Defined Benefit Pension Plans
2017
$89.8
94.8
$ 5.0
$ 0.3
3.2
(4.7)
1.1
$ (0.1)
$ 3.1
—
(6.6)
10.2
(7.9)
2016
$97.3
96.0
$ (1.3)
$ 0.3
3.3
(5.4)
0.8
$ (1.0)
$ 3.3
0.1
(6.7)
(0.6)
(4.2)
Other Postretirement Benefits
2017
$ 9.4
—
$ (9.4)
2016
$ 10.2
—
$(10.2)
$ —
0.3
—
—
$ 0.3
$ 0.5
—
(0.5)
—
—
$ —
0.3
—
—
$ 0.3
$ 0.6
—
(0.6)
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table sets forth additional information related to our defined benefit pension plans.
Accumulated benefit obligation for all pension plans
Plans with an accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
Plans with a projected benefit obligation in excess of plan assets:
Projected benefit obligation
Fair value of plan assets
April 30,
2017
$659.6
$570.6
394.4
$588.2
394.4
2016
$697.5
$697.5
505.6
$745.9
505.6
We employ a total return on investment approach for the defined benefit pension plans’ assets. A mix of equity, fixed-income, and
alternative investments is used to maximize the long-term rate of return on assets for the level of risk. In determining the expected long-
term rate of return on the defined benefit pension plans’ assets, we consider the historical rates of return, the nature of investments, the asset
allocation, and expectations of future investment strategies. The actual rate of return was 8.3 percent and 1.7 percent for the years ended
April 30, 2017 and 2016, respectively, which excludes administrative and investment expenses.
The following tables summarize the major asset classes for the U.S. and Canadian defined benefit pension plans and the levels within the
fair value hierarchy for those assets measured at fair value.
Cash and cash equivalents (A)
Equity securities:
U.S. (B)
International (C)
Fixed-income securities:
Bonds (D)
Fixed income (E)
Other types of investments (F)
Total financial assets measured at fair value
Total financial assets measured at net asset value (G)
Total plan assets
Cash and cash equivalents (A)
Equity securities:
U.S. (B)
International (C)
Fixed-income securities:
Bonds (D)
Fixed income (E)
Other types of investments (F)
Total financial assets measured at fair value
Total financial assets measured at net asset value (G)
Total plan assets
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$
2.7
128.9
81.4
168.5
71.9
6.7
$460.1
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$
2.5
122.0
83.7
188.1
62.4
6.2
$464.9
Significant
Observable
Inputs
(Level 2)
$ —
Significant
Unobservable
Inputs
(Level 3)
Plan Assets at
April 30, 2017
$ —
$
2.7
1.9
10.5
—
—
4.5
$16.9
—
—
—
—
2.4
$2.4
130.8
91.9
168.5
71.9
13.6
$479.4
9.8
$489.2
Significant
Observable
Inputs
(Level 2)
$ —
Significant
Unobservable
Inputs
(Level 3)
Plan Assets at
April 30, 2016
$ —
$
2.5
13.5
11.0
—
—
—
$24.5
—
—
—
—
3.2
$3.2
135.5
94.7
188.1
62.4
9.4
$492.6
13.0
$505.6
2017 ANNUAL REPORT 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
(A) This category includes money market holdings with maturities of three months or less and are classified as Level 1 assets. Based on the short-term nature
of these assets, carrying value approximates fair value.
(B) This category is invested primarily in a diversified portfolio of common stocks and index funds that invest in U.S. stocks with market capitalization
ranges similar to those found in the S&P 500 Index and/or the various Russell Indices and are traded on active exchanges. The Level 1 assets are valued
using quoted market prices for identical securities in active markets. The Level 2 assets are comprised of pooled funds that consist of equity securities
traded on active exchanges.
(C) This category is invested primarily in common stocks and other equity securities traded on active exchanges whose issuers are located outside the U.S.
The fund invests primarily in developed countries, but may also invest in emerging markets. The Level 1 assets are valued using quoted market prices
for identical securities in active markets. The Level 2 asset is comprised of a pooled fund that consists of equity securities traded on active exchanges.
(D) This category is comprised of bond funds, which seek to duplicate the return characteristics of high-quality corporate bonds with a duration range of
10 to 13 years. The Level 1 assets are valued using quoted market prices for identical securities in active markets.
(E) This category is comprised of fixed-income funds that invest primarily in government-related bonds of non-U.S. issuers and include investments in the
Canadian market as well as emerging markets. The Level 1 assets are valued using quoted market prices for identical securities in active markets.
(F) This category is comprised of a dynamic asset allocation mutual fund and a private limited investment partnership in 2016, and in 2017, the category also
includes a real estate fund whereby the underlying investments are contained within the Canadian market. The dynamic asset allocation mutual fund is
comprised of U.S. and global equities and fixed-income securities inclusive of derivatives within the asset mix. The dynamic asset allocation mutual
fund is classified as a Level 1 asset, whereby the assets are valued using quoted market prices for identical securities in active markets. However, the real
estate fund is classified as a Level 2 asset, whereby the underlying securities are valued utilizing quoted market prices for identical securities in active
markets. The private investment limited partnership is classified as a Level 3 asset. The investments in the partnership are valued at estimated fair value
based on audited financial statements received from the general partner. The private investment limited partnership cannot be redeemed, and the return
of principal is based on the liquidation of the underlying assets.
(G) This category is comprised of a private equity fund that consists primarily of limited partnership interests in corporate finance and venture capital funds.
The fair value estimate of the private equity fund is based on the underlying funds’ net asset values further as a practical expedient equivalent to the
Company's defined benefit plan’s ownership interest in partners’ capital, whereby a proportionate share of the net assets is attributed and further
corroborated by our review. The private equity fund is non-redeemable and the return of principal is based on the liquidation of the underlying assets. In
accordance with ASU 2015-07, the private equity fund is removed from the total financial assets measured at fair value and disclosed separately.
The following table presents a rollforward of activity for Level 3 assets.
Balance at May 1,
Actual return on plan assets still held at reporting date
Balance at April 30,
2017
$ 3.2
(0.8)
$ 2.4
2016
$ 2.8
0.4
$ 3.2
Our current investment policy is to invest 50 percent of assets in both equity securities and fixed-income securities. Included in equity
securities were 317,552 of our common shares at April 30, 2017. The total market value of these shares was $40.2 at April 30, 2017. We
paid dividends of $1.0 on these shares during 2017.
We expect to contribute approximately $16.2 to the defined benefit pension plans in 2018. We expect the following payments to be made
from the defined benefit pension and other postretirement benefit plans: $49.4 in 2018, $46.9 in 2019, $49.0 in 2020, $49.0 in 2021,
$48.8 in 2022, and $254.5 in 2023 through 2027.
Multi-Employer Pension Plan: As a result of the Big Heart acquisition, we now participate in one multi-employer pension plan, the
Bakery and Confectionery Union and Industry International Pension Fund (“Bakery and Confectionery Union Fund”) (52-6118572),
which provides defined benefits to certain union employees. During 2017 and 2016, a total of $1.9 and $1.8 was contributed to the plan,
respectively, and we anticipate contributions of $2.2 in 2018.
The risks of participating in multi-employer pension plans are different from the risks of participating in single-employer pension plans.
For instance, the assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
participating employers, and if a participating employer stops contributing to the plan, the unfunded obligations of the plan allocable to the
withdrawing employer may be the responsibility of the remaining participating employers. Additionally, if we stop participating in the
multi-employer pension plan, we may be required to pay the plan an amount based on our allocable share of the underfunded status of the
plan, referred to as a withdrawal liability.
The Pension Protection Act of 2006 ranks the funded status of multi-employer pension plans depending upon a plan’s current and projected
funding. A plan is in the Red Zone (Critical) if it has a current funded percentage less than 65 percent. A plan is in the Yellow Zone
(Endangered) if it has a current funded percentage of less than 80 percent or projects a credit balance deficit within seven years. A plan is in
the Green Zone (Healthy) if it has a current funded percentage greater than 80 percent and does not have a projected credit balance deficit
62 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
within seven years. The zone status is based on the plan’s year end, not our fiscal year end. The zone status is based on information that we
received from the plan and is certified by the plan’s actuary. During calendar year 2016, the Bakery and Confectionery Union Fund was in
Red Zone status, as the current funding status was 57.0 percent. A funding improvement plan, or rehabilitation plan, has been implemented.
NOTE 10
DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the
volatility related to these exposures, we enter into various derivative transactions. We have policies in place that define acceptable
instrument types we may enter into and establish controls to limit our market risk exposure.
Commodity Price Management: We enter into commodity derivatives to manage the price volatility and reduce the variability of
future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, edible oils, corn, wheat, and
soybean meal. We also enter into commodity derivatives to manage price risk for energy input costs, including diesel fuel and natural gas.
Our derivative instruments generally have maturities of less than one year.
We do not qualify commodity derivatives for hedge accounting treatment and, as a result, the derivative gains and losses are immediately
recognized in earnings. Although we do not perform the assessments required to achieve hedge accounting for derivative positions, we
believe all of our commodity derivatives are economic hedges of our risk exposure.
The commodities hedged have a high inverse correlation to price changes of the derivative commodity instrument. Thus, we would expect
that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the
estimated fair value of the underlying exposures.
Foreign Currency Exchange Rate Hedging: We utilize foreign currency derivatives to manage the effect of foreign currency
exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts
generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for
hedge accounting treatment.
Interest Rate Hedging: We utilize derivative instruments to manage changes in the fair value of our debt. Interest rate swaps mitigate
the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge
accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and
included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to interest expense in the period
during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the swap is recognized at fair value
on the balance sheet and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the derivative
are equal to changes in the fair value of the underlying debt and have no impact on earnings.
In 2015, we terminated the interest rate swap on the 3.50 percent Senior Notes due October 15, 2021, which was designated as a fair value
hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash,
which included $4.6 of accrued and prepaid interest. The gain on termination was deferred and is being recognized over the remaining life
of the underlying debt as a reduction of interest expense. To date, we recognized $17.2, of which $7.6, $7.4, and $2.2 was recognized in
2017, 2016, and 2015, respectively. The remaining gain will be recognized as follows: $7.8 in 2018, $8.0 in 2019, $8.1 in 2020, $8.4 in
2021, and $4.0 in 2022. For additional information, see Note 8: Debt and Financing Arrangements.
2017 ANNUAL REPORT 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following tables set forth the gross fair value amounts of derivative instruments recognized in the Consolidated Balance Sheets.
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivative instruments
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivative instruments
April 30, 2017
Other
Current
Assets
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
$ 5.2
3.2
$ 8.4
Other
Current
Assets
$20.3
0.2
$20.5
$21.2
0.1
$21.3
$ —
—
$ —
April 30, 2016
$ —
—
$ —
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
$14.1
8.9
$23.0
$2.0
0.3
$2.3
$1.2
0.4
$1.6
We have elected to not offset fair value amounts recognized for our exchange-traded commodity derivative instruments and our cash
margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to
maintain cash margin accounts in connection with funding the settlement of our open positions. At April 30, 2017 and 2016, we maintained
cash margin account balances of $41.8 and $3.4, respectively, included in other current assets in the Consolidated Balance Sheets. The
change in the cash margin account balances is included in other – net, investing activities in the Statements of Consolidated Cash Flows. In
the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our derivative liabilities
would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our
individual counterparties.
During both 2017 and 2016, we recognized $0.6 in pre-tax losses related to the termination of prior interest rate swaps. Included as a
component of accumulated other comprehensive loss at April 30, 2017 and 2016, were deferred pre-tax losses of $7.0 and $7.6,
respectively, related to the termination of these interest rate swaps. The related tax benefit recognized in accumulated other comprehensive
loss was $2.6 and $2.7 at April 30, 2017 and 2016, respectively. Approximately $0.6 of the pre-tax loss will be recognized over the next
12 months.
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as
hedging instruments.
Losses on commodity contracts
Gains on foreign currency exchange contracts
Total losses recognized in costs of products sold
Year Ended April 30,
2017
$(45.2)
9.8
$(35.4)
2016
$(31.6)
2.0
$(29.6)
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of
segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated
derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any
mark-to-market volatility. The following table presents the activity in unallocated derivative gains and losses.
Net losses on mark-to-market valuation of unallocated derivative positions
Net losses on derivative positions reclassified to segment operating profit
Unallocated derivative (losses) gains
Year Ended April 30,
2017
$(35.4)
8.2
$(27.2)
2016
$(29.6)
41.6
$ 12.0
2015
$(39.7)
15.2
$(24.5)
The net cumulative unallocated derivative losses at April 30, 2017 and 2016, were $35.6 and $8.4, respectively.
64 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table presents the gross contract notional value of outstanding derivative contracts.
Commodity contracts
Foreign currency exchange contracts
Year Ended April 30,
2017
$704.9
195.4
2016
$545.7
212.5
NOTE 11
OTHER FINANCIAL INSTRUMENTS AND FAIR VALUE
MEASUREMENTS
Financial instruments, other than derivatives, that potentially subject us to significant concentrations of credit risk consist principally of
cash investments, short-term borrowings, and trade receivables. The carrying value of these financial instruments approximates fair value.
Our other financial instruments, with the exception of long-term debt, are recognized at estimated fair value in the Consolidated
Balance Sheets.
The following table provides information on the carrying amounts and fair values of our financial instruments.
Marketable securities and other investments
Derivative financial instruments – net
Long-term debt
April 30, 2017
April 30, 2016
$
Carrying
Amount
47.3
(12.9)
(4,944.5)
Fair Value
47.3
$
(12.9)
(5,023.8)
$
Carrying
Amount
48.8
(1.8)
(5,146.0)
Fair Value
48.8
$
(1.8)
(5,319.9)
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs
reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for
our financial instruments.
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value at
April 30, 2017
Marketable securities and other investments: (A)
Equity mutual funds
Municipal obligations
Money market funds
Derivative financial instruments: (B)
Commodity contracts – net
Foreign currency exchange contracts – net
Long-term debt (C)
Total financial instruments measured at fair value
$
1.1
—
11.5
(15.8)
0.3
(4,473.2)
$(4,476.1)
$ —
34.7
—
(0.2)
2.8
(550.6)
$ (513.3)
$ —
—
—
—
—
—
$ —
$
1.1
34.7
11.5
(16.0)
3.1
(5,023.8)
$(4,989.4)
2017 ANNUAL REPORT 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value at
April 30, 2016
Marketable securities and other investments: (A)
Equity mutual funds
Municipal obligations
Money market funds
Derivative financial instruments: (B)
Commodity contracts – net
Foreign currency exchange contracts – net
Long-term debt (C)
Total financial instruments measured at fair value
$
9.8
—
1.4
15.0
(1.7)
(4,569.0)
$(4,544.5)
$ —
37.6
—
(8.0)
(7.1)
(750.9)
$ (728.4)
$ —
—
—
—
—
—
$ —
$
9.8
37.6
1.4
7.0
(8.8)
(5,319.9)
$(5,272.9)
(A) Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The
funds include equity securities listed in active markets, municipal obligations valued by a third party using valuation techniques that utilize inputs that
are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less. Based on the
short-term nature of these money market funds, carrying value approximates fair value. As of April 30, 2017, our municipal obligations are scheduled to
mature as follows: $1.4 in 2018, $2.3 in 2019, $2.2 in 2020, $5.1 in 2021, and the remaining $23.7 in 2022 and beyond. For additional information, see
Marketable Securities and Other Investments in Note 1: Accounting Policies.
(B) Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets. Level 2
commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets.
(C) Long-term debt is comprised of public Senior Notes classified as Level 1 and the Term Loan classified as Level 2. The public Senior Notes are traded in
an active secondary market and valued using quoted prices. The value of the Term Loan is based on the net present value of each interest and principal
payment calculated, utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of term
loan borrowing arrangements. For additional information, see Note 8: Debt and Financing Arrangements.
Furthermore, we recognized nonrecurring fair value adjustments of $133.2 during 2017, which were primarily related to the impairment of
certain indefinite-lived trademarks in the U.S. Retail Pet Foods segment, and were included as a noncash charge in our Statement of
Consolidated Income. We utilized Level 3 inputs based on management’s best estimates and assumptions to estimate the fair value of these
indefinite-lived trademarks, which include estimates of future cash flows; allocations of certain assets, liabilities, and cash flows among
reporting units; future growth rates; terminal value amounts; and the applicable weighted-average cost of capital used to discount those
estimated cash flows. For additional information, see Goodwill and Other Intangible Assets in Note 1: Accounting Policies, and Note 7:
Goodwill and Other Intangible Assets.
NOTE 12
SHARE-BASED PAYMENTS
We provide for equity-based incentives to be awarded to key employees and non-employee directors. Currently, these incentives consist of
restricted shares, restricted stock units (which may also be referred to as deferred stock units), performance units, and stock options. These
awards are administered primarily through the 2010 Equity and Incentive Compensation Plan initially approved by our shareholders in
August 2010 and re-approved in August 2015. Awards under this plan may be in the form of stock options, stock appreciation rights,
restricted shares, restricted stock units, performance shares, performance units, incentive awards, and other share-based awards. Awards
under this plan may be granted to our non-employee directors, consultants, officers, and other employees. Deferred stock units granted to
non-employee directors vest immediately and, along with dividends credited on those deferred stock units, are paid out in the form of
common shares upon termination of service as a non-employee director. At April 30, 2017, there were 5,264,155 shares available for future
issuance under this plan.
Under the 2010 Equity and Incentive Compensation Plan, we have the option to settle share-based awards by issuing common shares
from treasury, issuing new Company common shares, or issuing a combination of common shares from treasury and new Company
common shares.
Stock Options: Under the 2010 Equity and Incentive Compensation Plan, we granted no stock options during 2017, and 370,000 and
955,000 stock options during 2016 and 2015, respectively. The options vest over a period of 1 to 3 years dependent on the continued
service of the option holder, as well as the achievement of performance objectives established on the grant date. The exercise price of all
66 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
stock options granted is equal to the market value of the shares on the date of grant. All stock options granted during 2016 and 2015 have a
contractual term of 10 years.
The fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model with the following
weighted-average assumptions for stock options granted in 2016 and 2015:
Expected volatility (%)
Dividend Yield (%)
Risk-free interest rate (%)
Expected life of stock option (years)
2016
20.7%
2.3%
1.9%
5.9
2015
25.0%
2.2%
1.5%
5.6
Expected volatility was calculated in accordance with the provisions of FASB ASC 718, Compensation – Stock Compensation, based on
consideration of both historical and implied volatilities. The expected life of a stock option represents the period from the grant date
through the expected exercise date of the option. This was calculated using a simplified method whereby the midpoint between the vesting
date and the end of the contractual term is utilized to compute the expected term.
The following table is a summary of our stock option activity.
Outstanding at May 1, 2016
Cancelled
Outstanding at April 30, 2017
Exercisable at April 30, 2017
Number of
Stock Options
1,245,000
330,000
915,000
—
Weighted-Average
Exercise Price
$113.29
113.90
$113.07
$ —
Stock options outstanding at April 30, 2017 have an aggregate intrinsic value of $12.5 with an average remaining contractual term of
8.0 years. The stock options granted during 2016 and 2015 have a weighted-average grant date fair value of $18.67 and $21.68 per option,
respectively. During 2017, there were no stock options exercised. The total intrinsic value of stock options exercised during 2016 and 2015
was $0.1 and $1.9, respectively. The closing market price of our common stock on the last trading day of 2017 was $126.72 per share.
For stock options granted, compensation cost will be recognized ratably over the service period for each vesting tranche from the grant
date through the end of the requisite service period to the extent the performance objectives are likely to be achieved. During 2017, we
concluded that a portion of the performance objectives were unachievable, and therefore reversed the life-to-date compensation cost
recognized. For the year ended April 30, 2017, the compensation net benefit for stock option awards totaled $1.0, and compensation cost
totaled $8.1 and $1.2 for the years ended April 30, 2016, and 2015, respectively, which was included in other special project costs in the
Statements of Consolidated Income. The tax expense related to the stock option net benefit was $0.4 for 2017, and the tax benefit related to
the stock option expense was $3.0 and $0.4 for 2016 and 2015, respectively. At April 30, 2017, we had $1.0 of total unrecognized
compensation cost, net of estimated forfeitures, related to stock options that will be recognized over a weighted-average period of 1.0 year.
Cash received from stock option exercises for the years ended April 30, 2016 and 2015, was $0.1 and $0.8, respectively. We received no
cash from stock option exercises for the year ended April 30, 2017.
Other Equity Awards: The following table is a summary of our restricted shares, deferred stock units, and performance units.
Outstanding at May 1, 2016
Granted
Converted
Vested
Forfeited
Outstanding at April 30, 2017
Restricted Shares
and Deferred
Stock Units
545,742
180,997
121,936
(243,561)
(31,709)
573,405
Weighted-
Average
Grant Date
Fair Value
$ 99.65
133.92
132.46
100.81
118.97
$115.88
Performance
Units
121,936
73,701
(121,936)
—
—
73,701
Weighted-
Average
Conversion Date
Fair Value
$132.46
126.80
132.46
—
—
$126.80
2017 ANNUAL REPORT 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The weighted-average grant date fair value of equity awards other than stock options that vested in 2017, 2016, and 2015 was $24.6, $18.7,
and $28.6, respectively. The vesting date fair value of equity awards other than stock options that vested in 2017, 2016, and 2015 was
$32.7, $24.4, and $43.4, respectively. The weighted-average grant date fair value of restricted shares and deferred stock units is the average
of the high and the low share price on the date of grant. The weighted-average conversion date fair value of performance units is the
average of the high and the low share price on the date of conversion to restricted shares. The following table summarizes the weighted-
average fair values of the equity awards granted.
Year Ended April 30,
2017
2016
2015
Restricted Shares
and Deferred
Stock Units
180,997
97,922
109,091
Weighted-
Average
Grant Date
Fair Value
$133.92
113.57
104.82
Performance
Units
73,701
121,936
75,848
Weighted-
Average
Conversion Date
Fair Value
$ 126.80
132.46
111.41
The performance units column represents the number of restricted shares received by certain executive officers, subsequent to year end,
upon conversion of the performance units earned during the year. Restricted shares and deferred stock units generally vest 4 years from the
date of grant or upon the attainment of a defined age and years of service, subject to certain retention requirements.
NOTE 13
INCOME TAXES
Income before income taxes is as follows:
Domestic
Foreign
Income before income taxes
The components of the provision for income taxes are as follows:
Current:
Federal
Foreign
State and local
Deferred:
Federal
Foreign
State and local
Total income tax expense
2017
$836.8
41.6
$878.4
2017
$325.1
11.0
29.4
(78.3)
1.6
(2.7)
$286.1
Year Ended April 30,
2016
$959.3
18.6
$977.9
Year Ended April 30,
2016
$342.5
4.8
37.1
(32.1)
1.3
(64.4)
$289.2
2015
$500.7
22.3
$523.0
2015
$147.8
4.7
17.9
2.3
0.5
4.9
$178.1
68 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
A reconciliation of the statutory federal income tax rate and the effective income tax rate is as follows:
(Percent of Pre-tax Income)
Statutory federal income tax rate
State and local income taxes
Domestic manufacturing deduction
Deferred tax benefit from integration
Other items – net
Effective income tax rate
Income taxes paid
2017
35.0%
2.1
(3.7)
—
(0.8)
32.6%
Year Ended April 30,
2016
35.0%
2.5
(3.5)
(5.2)
0.8
29.6%
2015
35.0%
2.4
(2.9)
—
(0.4)
34.1%
$367.2
$290.5
$199.3
The effective tax rate of 29.6 percent in 2016 includes the recognition in the fourth quarter of a $50.5 noncash deferred tax benefit related
to the integration of Big Heart into the Company.
We are a voluntary participant in the Compliance Assurance Process (“CAP”) program offered by the Internal Revenue Service (“IRS”)
and are currently under a CAP examination for the tax year ended April 30, 2017. Through the contemporaneous exchange of information
with the IRS, this program is designed to identify and resolve tax positions with the IRS prior to the filing of a tax return, which allows us
to remain current with our IRS examinations. The IRS has completed the CAP examinations for the tax years ended April 30, 2014, 2015,
and 2016. The tax years prior to 2014 are no longer subject to U.S. federal tax examination. With limited exceptions, we are no longer
subject to examination for state and local jurisdictions for the tax years prior to 2013 and for the tax years prior to 2010 for
foreign jurisdictions.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting. Significant components of our deferred tax assets and liabilities are
as follows:
Deferred tax liabilities:
Intangible assets
Property, plant, and equipment
Other
Total deferred tax liabilities
Deferred tax assets:
Post-employment and other employee benefits
Tax credit and loss carryforwards
Intangible assets
Inventory
Property, plant, and equipment
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, less allowance
Net deferred tax liability
April 30,
2017
2016
$2,248.0
129.8
16.5
$2,394.3
$ 146.3
1.8
25.4
10.5
3.1
43.8
$ 230.9
(3.6)
$ 227.3
$2,167.0
$2,330.8
140.5
11.9
$2,483.2
$ 171.8
3.7
23.2
8.0
5.1
47.3
$ 259.1
(6.2)
$ 252.9
$2,230.3
2017 ANNUAL REPORT 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
The following table summarizes domestic and foreign loss and credit carryforwards at April 30, 2017.
Tax carryforwards:
Federal loss carryforwards
Foreign loss carryforwards
State loss carryforwards
State tax credit carryforwards
Total tax carryforwards
Related Tax
Deduction
Deferred
Tax Asset
Valuation
Allowance
Expiration
Date
$ —
—
3.9
—
$ 3.9
$ 0.8
0.6
0.3
0.1
$ 1.8
$ 0.1
0.6
—
—
$ 0.7
2022
2019 to 2026
2034
2027
We evaluate the realizability of deferred tax assets for each of the jurisdictions in which we operate. The total valuation allowance
decreased by a net amount of $2.6 during the year.
Deferred income taxes have not been provided on approximately $245.0 of undistributed earnings of foreign subsidiaries since these
amounts are considered to be permanently reinvested and we do not intend to repatriate any of the amounts. Any additional taxes payable
on the earnings of foreign subsidiaries, if remitted, would be partially offset by domestic tax deductions or tax credits for foreign taxes paid.
It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.
Our unrecognized tax benefits were $40.4, $46.3, and $45.0, of which $23.1, $32.6, and $32.2 would affect the effective tax rate, if
recognized, as of April 30, 2017, 2016, and 2015, respectively. Our accrual for tax-related net interest and penalties totaled $4.1, $3.8, and
$3.4 as of April 30, 2017, 2016, and 2015, respectively. Interest charged to earnings totaled $0.3, $0.6, and $0.7 during 2017, 2016, and
2015, respectively.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated $6.7, primarily as
a result of the expiration of statute of limitation periods.
A reconciliation of our unrecognized tax benefits is as follows:
Balance at May 1,
Increases:
Current year tax positions
Prior year tax positions
Acquired businesses
Decreases:
Prior year tax positions
Settlement with tax authorities
Expiration of statute of limitations periods
Balance at April 30,
2017
$46.3
0.7
1.2
—
0.9
1.1
5.8
$40.4
2016
$45.0
3.3
0.2
3.3
0.9
2.5
2.1
$46.3
2015
$29.1
2.4
1.2
13.4
0.4
—
0.7
$45.0
70 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
NOTE 14
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, including the reclassification adjustments for items that are reclassified from
accumulated other comprehensive loss to net income, are shown below.
Balance at May 1, 2014
Reclassification adjustments
Current period charge
Income tax benefit
Balance at April 30, 2015
Reclassification adjustments
Current period (charge) credit
Income tax (expense) benefit
Balance at April 30, 2016
Reclassification adjustments
Current period (charge) credit
Income tax expense
Balance at April 30, 2017
Foreign
Currency
Translation
Adjustment
$ 31.7
—
(34.0)
—
$ (2.3)
—
(10.8)
—
$(13.1)
—
(29.9)
—
$(43.0)
Unrealized
(Loss) Gain on
Cash Flow Hedging
Derivatives (A)
$ 15.3
(28.5)
(4.0)
12.0
$ (5.2)
0.6
—
(0.2)
$ (4.8)
0.6
—
(0.2)
$ (4.4)
Pension
and Other
Postretirement
Liabilities (B)
$ (102.0)
9.8
(16.2)
2.8
$ (105.6)
10.2
(54.6)
15.9
$ (134.1)
13.2
39.6
(18.7)
$ (100.0)
Unrealized
Gain on
Available-for-Sale
Securities
$ 3.4
—
(0.1)
—
$ 3.3
—
0.4
(0.1)
$ 3.6
—
0.6
(0.2)
$ 4.0
Accumulated
Other
Comprehensive
Loss
$ (51.6)
(18.7)
(54.3)
14.8
$(109.8)
10.8
(65.0)
15.6
$(148.4)
13.8
10.3
(19.1)
$(143.4)
(A) Of the total losses reclassified from accumulated other comprehensive loss, $0.6 was reclassified to interest expense related to the interest rate swaps
during 2017, 2016, and 2015. During 2015, $29.1 of income was reclassified to cost of products sold related to commodity derivatives. At
April 30, 2017, the remaining balance in accumulated other comprehensive loss related entirely to the interest rate swaps. For additional information,
see Note 10: Derivative Financial Instruments.
(B) Amortization of net losses was reclassified from accumulated other comprehensive loss to SD&A.
NOTE 15
CONTINGENCIES
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising
in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings. We cannot predict with certainty
the ultimate results of these proceedings or reasonably determine a range of potential loss. Our policy is to accrue losses for contingent
liabilities when such liabilities are probable and amounts can be reasonably estimated. Based on the information known to date, we do not
believe the final outcome of these proceedings will have a material adverse effect on our financial position, results of operations, or
cash flows.
NOTE 16
GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION
Our Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by J.M. Smucker LLC and The Folgers Coffee
Company (the “subsidiary guarantors”), which are 100 percent wholly-owned subsidiaries of the Company. A subsidiary guarantor will be
released from its obligations under the indentures governing the notes (a) with respect to each series of notes, if we exercise our legal or
covenant defeasance option with respect to such series of notes or if our obligations under an indenture are discharged in accordance with
the terms of such indenture in respect of such series of notes; (b) with respect to all series of notes issued in March 2015, upon the issuance,
sale, exchange, transfer, or other disposition (including through merger, consolidation, amalgamation, or otherwise) of the capital stock of
the applicable subsidiary guarantor (including any issuance, sale, exchange, transfer, or other disposition following which the applicable
subsidiary guarantor is no longer a subsidiary) if such issuance, sale, exchange, transfer, or other disposition is made in a manner not in
violation of the indenture in respect of such series of notes; or (c) with respect to all series of notes, upon the substantially simultaneous
release or discharge of the guarantee by such subsidiary guarantor of all of our primary senior indebtedness other than through discharges
as a result of payment by such guarantor on such guarantees.
2017 ANNUAL REPORT 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
Condensed consolidating financial statements for the Company, the subsidiary guarantors, and the other subsidiaries of the Company that
are not guaranteeing the indebtedness under the Senior Notes (the “non-guarantor subsidiaries”) are provided below. The principal
elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with our
100 percent wholly-owned subsidiary guarantors and non-guarantor subsidiaries. We have accounted for investments in subsidiaries using
the equity method.
CONDENSED CONSOLIDATING STATEMENTS OF
COMPREHENSIVE INCOME
Net sales
Cost of products sold
Gross Profit
Selling, distribution, and administrative
expenses and other special project costs
Amortization
Impairment charges
Other operating expense (income) – net
Operating Income
Interest (expense) income – net
Other income (expense) – net
Equity in net earnings of subsidiaries
Income Before Income Taxes
Income taxes
Net Income
Other comprehensive income (loss), net of tax
Comprehensive Income
The J. M. Smucker
Company (Parent)
$2,968.6
2,393.1
575.5
318.8
10.5
—
1.2
245.0
(164.1)
11.6
492.2
584.7
(7.6)
$ 592.3
5.0
$ 597.3
Subsidiary
Guarantors
$1,177.6
1,070.0
107.6
40.0
—
—
1.0
66.6
1.2
2.8
147.0
217.6
0.4
$ 217.2
2.1
$ 219.3
Year Ended April 30, 2017
Non-Guarantor
Subsidiaries
$9,379.9
7,223.7
2,156.2
Eliminations
$(6,133.8)
(6,129.8)
(4.0)
Consolidated
$7,392.3
4,557.0
2,835.3
1,108.8
196.8
133.2
(6.5)
723.9
(0.2)
(4.4)
69.4
788.7
293.3
$ 495.4
(31.1)
$ 464.3
—
—
—
—
(4.0)
—
—
(708.6)
(712.6)
—
$ (712.6)
29.0
$ (683.6)
1,467.6
207.3
133.2
(4.3)
1,031.5
(163.1)
10.0
—
878.4
286.1
$ 592.3
5.0
$ 597.3
CONDENSED CONSOLIDATING STATEMENTS OF
COMPREHENSIVE INCOME
Year Ended April 30, 2016
Net sales
Cost of products sold
Gross Profit
Selling, distribution, and administrative
expenses and other special project costs
Amortization
Other operating (income) expense – net
Operating Income
Interest (expense) income – net
Other income (expense) – net
Equity in net earnings of subsidiaries
Income Before Income Taxes
Income taxes
Net Income
Other comprehensive loss, net of tax
Comprehensive Income
The J. M. Smucker
Company (Parent)
$3,155.3
2,468.0
687.3
Subsidiary
Guarantors
$1,184.5
1,083.3
101.2
Non-Guarantor
Subsidiaries
$8,724.9
6,549.6
2,175.3
Eliminations
$(5,253.5)
(5,257.5)
4.0
Consolidated
$7,811.2
4,843.4
2,967.8
290.9
4.2
(25.2)
417.4
(172.0)
9.6
513.1
768.1
79.4
$ 688.7
(38.6)
$ 650.1
40.5
—
1.1
59.6
1.2
1.2
138.3
200.3
0.4
$ 199.9
(1.7)
$ 198.2
1,314.8
204.2
(8.0)
664.3
(0.3)
(70.5)
60.8
654.3
209.4
$ 444.9
(20.7)
$ 424.2
—
—
—
4.0
—
63.4
(712.2)
(644.8)
—
$ (644.8)
22.4
$ (622.4)
1,646.2
208.4
(32.1)
1,145.3
(171.1)
3.7
—
977.9
289.2
$ 688.7
(38.6)
$ 650.1
72 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATING STATEMENTS OF
COMPREHENSIVE INCOME
Year Ended April 30, 2015
Net sales
Cost of products sold
Gross Profit
Selling, distribution, and administrative
expenses and other special project costs
Amortization
Impairment charges
Other operating expense (income) – net
Operating Income
Interest (expense) income – net
Other debt costs
Other income – net
Equity in net earnings of subsidiaries
Income Before Income Taxes
Income taxes
Net Income
Other comprehensive loss, net of tax
Comprehensive Income
The J. M. Smucker
Company (Parent)
$ 2,998.0
2,457.8
540.2
Subsidiary
Guarantors
$1,184.0
1,080.0
104.0
Non-Guarantor
Subsidiaries
$ 6,622.4
5,301.6
1,320.8
Eliminations
$ (5,111.7)
(5,115.4)
3.7
Consolidated
$ 5,692.7
3,724.0
1,968.7
234.9
4.2
—
0.3
300.8
(80.7)
(173.3)
0.6
312.6
360.0
15.1
344.9
(58.2)
286.7
$
$
53.8
—
—
(2.4)
52.6
1.2
—
0.1
131.4
185.3
0.4
$ 184.9
(18.5)
$ 166.4
799.2
105.5
1.2
—
414.9
(0.4)
—
3.5
52.7
470.7
162.6
308.1
(43.3)
264.8
$
$
—
—
—
—
3.7
—
—
—
(496.7)
(493.0)
—
(493.0)
61.8
(431.2)
$
$
1,087.9
109.7
1.2
(2.1)
772.0
(79.9)
(173.3)
4.2
—
523.0
178.1
344.9
(58.2)
286.7
$
$
CONDENSED CONSOLIDATING BALANCE SHEETS
April 30, 2017
The J. M. Smucker
Company (Parent)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Current Assets
Cash and cash equivalents
Inventories
Other current assets
Total Current Assets
Property, Plant, and Equipment – Net
Investments in Subsidiaries
Intercompany Receivable
Other Noncurrent Assets
Goodwill
Other intangible assets – net
Other noncurrent assets
Total Other Noncurrent Assets
Total Assets
$
8.5
—
490.5
499.0
294.1
15,573.2
—
1,494.8
417.7
59.2
1,971.7
$18,338.0
$ —
136.6
8.1
144.7
574.8
4,464.9
510.4
—
—
10.6
10.6
$5,705.4
$
158.3
773.1
71.6
1,003.0
748.6
403.1
2,083.2
4,582.3
5,732.2
83.6
10,398.1
$14,636.0
$
—
(4.0)
(0.9)
(4.9)
—
(20,441.2)
(2,593.6)
—
—
—
—
$(23,039.7)
$
166.8
905.7
569.3
1,641.8
1,617.5
—
—
6,077.1
6,149.9
153.4
12,380.4
$15,639.7
$ 1,381.7
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Noncurrent Liabilities
Long-term debt, less current portion
Deferred income taxes
Intercompany payable
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
4,445.5
44.7
5,311.9
304.0
10,106.1
11,487.8
6,850.2
$18,338.0
$
98.8
$
353.0
$
(0.9)
$ 1,832.6
—
—
—
15.1
15.1
113.9
5,591.5
$5,705.4
—
2,122.3
—
25.3
2,147.6
2,500.6
12,135.4
$14,636.0
—
—
(5,311.9)
—
(5,311.9)
(5,312.8)
(17,726.9)
$(23,039.7)
4,445.5
2,167.0
—
344.4
6,956.9
8,789.5
6,850.2
$15,639.7
2017 ANNUAL REPORT 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATING BALANCE SHEETS
April 30, 2016
The J. M. Smucker
Company (Parent)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Current Assets
Cash and cash equivalents
Inventories
Other current assets
Total Current Assets
Property, Plant, and Equipment – Net
Investments in Subsidiaries
Intercompany Receivable
Other Noncurrent Assets
Goodwill
Other intangible assets – net
Other noncurrent assets
Total Other Noncurrent Assets
Total Assets
$
7.0
—
497.3
504.3
296.3
15,092.2
—
1,494.8
428.3
57.4
1,980.5
$17,873.3
$
—
143.2
5.9
149.1
587.0
4,317.9
404.7
—
—
10.4
10.4
$5,469.1
$
102.8
752.0
71.9
926.7
744.4
331.6
1,543.9
4,596.3
6,066.1
129.7
10,792.1
$14,338.7
$
—
4.2
(10.9)
(6.7)
—
(19,741.7)
(1,948.6)
—
—
—
—
$ (21,697.0)
$
109.8
899.4
564.2
1,573.4
1,627.7
—
—
6,091.1
6,494.4
197.5
12,783.0
$15,984.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
$
Noncurrent Liabilities
Long-term debt
Deferred income taxes
Intercompany payable
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
5,146.0
60.7
4,644.7
290.1
10,141.5
10,864.8
7,008.5
$17,873.3
723.3
$
78.9
$
421.6
$
(10.8)
$ 1,213.0
—
—
—
17.9
17.9
96.8
5,372.3
$5,469.1
—
2,169.6
—
78.3
2,247.9
2,669.5
11,669.2
$14,338.7
—
—
(4,644.7)
—
(4,644.7)
(4,655.5)
(17,041.5)
$ (21,697.0)
5,146.0
2,230.3
—
386.3
7,762.6
8,975.6
7,008.5
$15,984.1
74 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended April 30, 2017
Net Cash Provided by Operating Activities
Investing Activities
Additions to property, plant, and equipment
Proceeds from sale of investment
Proceeds from disposal of property, plant, and equipment
(Disbursements of) repayments from intercompany loans
Other – net
Net Cash (Used for) Provided by Investing Activities
Financing Activities
Short-term borrowings – net
Repayments of long-term debt
Quarterly dividends paid
Purchase of treasury shares
Intercompany payable
Other – net
Net Cash Used for Financing Activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
( ) Denotes use of cash
The J. M. Smucker
Company (Parent)
$ 172.7
Subsidiary
Guarantors
$ 154.8
Non-Guarantor
Subsidiaries Eliminations Consolidated
$ 731.5
$
—
$ 1,059.0
(32.1)
—
0.1
—
(0.2)
(32.2)
170.0
(200.0)
(339.3)
(437.6)
667.1
0.8
(139.0)
—
1.5
7.0
8.5
$
(47.2)
—
—
(105.8)
(1.8)
(154.8)
—
—
—
—
—
—
—
—
—
—
$ —
(113.1)
40.6
0.4
(561.3)
(36.4)
(669.8)
—
—
—
—
—
—
—
(6.2)
55.5
102.8
$ 158.3
—
—
—
667.1
—
667.1
—
—
—
—
(667.1)
—
(667.1)
—
—
—
—
$
(192.4)
40.6
0.5
—
(38.4)
(189.7)
170.0
(200.0)
(339.3)
(437.6)
—
0.8
(806.1)
(6.2)
57.0
109.8
166.8
$
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended April 30, 2016
Net Cash (Used for) Provided by Operating Activities
Investing Activities
Businesses acquired, net of cash acquired
Equity investment in affiliate
Additions to property, plant, and equipment
Proceeds from divestiture
Proceeds from disposal of property, plant, and equipment
(Disbursements of) repayments from intercompany loans
Other – net
Net Cash Provided by (Used for) Investing Activities
Financing Activities
Short-term borrowings – net
Repayments of long-term debt
Quarterly dividends paid
Purchase of treasury shares
Intercompany payable
Other – net
Net Cash Provided by (Used for) Financing Activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
( ) Denotes use of cash
The J. M. Smucker
Company (Parent)
$ (190.1)
Subsidiary
Guarantors
$ 151.4
Non-Guarantor
Subsidiaries Eliminations
—
$ 1,499.7
$
—
—
(71.8)
193.7
3.7
—
(1.2)
124.4
58.0
(800.0)
(316.6)
(441.1)
1,564.5
0.8
65.6
—
(0.1)
7.1
7.0
$
—
—
(53.7)
—
0.1
(99.4)
1.6
(151.4)
—
—
—
—
—
—
—
—
—
—
$ —
7.9
(16.0)
(75.9)
—
0.2
(1,465.1)
33.1
(1,515.8)
—
—
—
—
—
—
—
0.4
(15.7)
118.5
$ 102.8
—
—
—
—
—
1,564.5
—
1,564.5
—
—
—
—
(1,564.5)
—
(1,564.5)
—
—
—
—
$
Consolidated
$ 1,461.0
7.9
(16.0)
(201.4)
193.7
4.0
—
33.5
21.7
58.0
(800.0)
(316.6)
(441.1)
—
0.8
(1,498.9)
0.4
(15.8)
125.6
109.8
$
2017 ANNUAL REPORT 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended April 30, 2015
The J. M. Smucker
Company (Parent)
$ 245.1
Subsidiary
Guarantors
$ 87.8
Non-Guarantor
Subsidiaries Eliminations Consolidated
$
406.2
$
—
$
739.1
Net Cash Provided by Operating Activities
Investing Activities
Businesses acquired, net of cash acquired
Additions to property, plant, and equipment
Proceeds from disposal of property, plant, and equipment
Equity investments in subsidiaries
Repayments from (disbursements of) intercompany loans
Other – net
Net Cash (Used for) Provided by Investing Activities
Financing Activities
Short-term repayments – net
Proceeds from long-term debt
Repayments of long-term debt, including make-whole payments
Quarterly dividends paid
Purchase of treasury shares
Investments in subsidiaries
Intercompany payable
Other – net
Net Cash Provided by (Used for) Financing Activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
(1,240.0)
(56.3)
—
(2,715.3)
—
—
(4,011.6)
(5.3)
5,382.5
(1,580.8)
(254.0)
(24.3)
—
287.3
(38.6)
3,766.8
—
0.3
6.8
7.1
$
—
(93.3)
1.1
—
10.2
(5.8)
(87.8)
—
—
—
—
—
—
—
—
—
—
—
—
$ —
(80.5)
(98.1)
1.5
—
(297.5)
(24.3)
(498.9)
(17.1)
—
(2,613.1)
—
—
2,715.3
—
8.0
93.1
(28.6)
(28.2)
146.7
118.5
$
—
—
—
2,715.3
287.3
—
3,002.6
—
—
—
—
—
(2,715.3)
(287.3)
—
(3,002.6)
—
—
—
—
$
(1,320.5)
(247.7)
2.6
—
—
(30.1)
(1,595.7)
(22.4)
5,382.5
(4,193.9)
(254.0)
(24.3)
—
—
(30.6)
857.3
(28.6)
(27.9)
153.5
125.6
$
( ) Denotes use of cash
NOTE 17
COMMON SHARES
Voting: The Amended Articles of Incorporation (“Articles”) provide that each holder of a common share outstanding is entitled to one vote
on each matter submitted to a vote of the shareholders, except for the following specific matters:
• any matter that relates to or would result in the dissolution or liquidation of the Company;
• the adoption of any amendment to the Articles or Amended Regulations, or the adoption of amended Articles, other than the adoption
of any amendment or amended Articles that increases the number of votes to which holders of our common shares are entitled or
expands the matters to which time-phased voting applies;
• any proposal or other action to be taken by our shareholders relating to the Rights Agreement, dated as of May 20, 2009, between the
Company and Computershare Trust Company, N.A., or any successor plan;
• any matter relating to any stock option plan, stock purchase plan, executive compensation plan, executive benefit plan, or other
similar plan, arrangement, or agreement;
• the adoption of any agreement or plan of or for the merger, consolidation, or majority share acquisition of us or any of our
subsidiaries with or into any other person, whether domestic or foreign, corporate or noncorporate, or the authorization of the lease,
sale, exchange, transfer, or other disposition of all, or substantially all, of our assets;
• any matter submitted to our shareholders pursuant to Article Fifth (which relates to procedures applicable to certain business
combinations) or Article Seventh (which relates to procedures applicable to certain proposed acquisitions of specified percentages of
our outstanding common shares) of the Articles, as they may be further amended, or any issuance of our common shares for which
shareholder approval is required by applicable stock exchange rules; and
• any matter relating to the issuance of our common shares or the repurchase of our common shares that the Board of Directors
(“Board”) determines is required or appropriate to be submitted to our shareholders under the Ohio Revised Code or applicable stock
exchange rules.
76 THE J. M. SMUCKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The J. M. Smucker Company
On the matters listed above, common shares are entitled to 10 votes per share if they meet the requirements set forth in the Articles.
Common shares which would be entitled to 10 votes per share must meet one of the following criteria:
• common shares for which there has not been a change in beneficial ownership in the past four years; or
• common shares received through our various equity plans that have not been sold or otherwise transferred.
In the event of a change in beneficial ownership, the new owner of that common share will be entitled to only one vote with respect to that
share on all matters until four years pass without a further change in beneficial ownership of the share.
Shareholders’ Rights Plan: Pursuant to a Shareholders’ Rights Plan adopted by the Board on May 20, 2009, one share purchase right is
associated with each of our outstanding common shares.
Under the plan, the rights will initially trade together with our common shares and will not be exercisable. In the absence of further action
by the directors, the rights generally will become exercisable and allow the holder to acquire our common shares at a discounted price if a
person or group acquires 10 percent or more of our outstanding common shares. Rights held by persons who exceed the applicable
threshold will be void. Shares held by members of the Smucker family are not subject to the threshold. If exercisable, each right entitles the
shareholder to buy one common share at a discounted price. Under certain circumstances, the rights will entitle the holder to buy shares in
an acquiring entity at a discounted price.
The plan also includes an exchange option. In general, if the rights become exercisable, the directors may, at their option, effect an
exchange of part or all of the rights, other than rights that have become void, for common shares. Under this option, we would issue
one common share for each right, in each case subject to adjustment in certain circumstances.
The directors may, at their option, redeem all rights for $0.001 per right, generally at any time prior to the rights becoming exercisable. The
rights will expire June 3, 2019, unless earlier redeemed, exchanged, or amended by the directors.
In connection with the Big Heart acquisition, we and the rights agent entered into an amendment to the plan providing that neither the
approval, execution, delivery, or performance of the merger agreement or the shareholders’ agreement entered into in connection with the
transaction will in any way give rise to any provision of the plan becoming effective, and that none of Blue Holdings I, L.P., the controlling
stockholder of BAG, or any of its affiliates will be deemed to be an acquiring person for purposes of the plan.
During 2017, we and the rights agent entered into another amendment to the plan to amend the definition of beneficial ownership to
provide that, among other things and subject to certain exceptions, a person will not be deemed the beneficial owner of, or to beneficially
own, the first 10 percent of then-outstanding common shares of the Company that would otherwise be deemed to be beneficially owned by
such person, together with all its affiliates and associates, if such person is entitled to file, and files, a statement on Schedule 13G pursuant
to Rule 13d-1(b) or Rule 14d-1(c) under the Securities and Exchange Act of 1934, as amended.
Repurchase Programs: On February 22, 2017, we entered into a 10b5-1 trading plan (the “Plan”) to facilitate the repurchase of up to
3.0 million common shares under the Board’s authorizations. Purchases under the Plan commenced on February 27, 2017, and concluded
on March 27, 2017, and were transacted by a broker based upon the guidelines and parameters of the Plan. During 2017, we repurchased
3.0 million common shares under the Plan for $418.1, and a total of 3.4 million common shares were repurchased under previous plans
during 2016 for $437.8.
At April 30, 2017, approximately 3.6 million common shares were remaining available for repurchase pursuant to the Board’s
authorizations.
NOTE 18
SUBSEQUENT EVENT
On May 30, 2017, we announced a definitive agreement to acquire the Wesson® oil brand from Conagra Brands, Inc. (“Conagra”). The all-
cash transaction, which is expected to be funded primarily with debt, is valued at approximately $285.0. We anticipate the addition of the
Wesson brand will add annual net sales of approximately $230.0.
Following the close of the transaction, Conagra will continue to manufacture products sold under the Wesson brand and provide certain
other transition services for up to one year. After the transition period, we expect to consolidate Wesson production into our existing oils
manufacturing facility in Cincinnati, Ohio. The closing of the transaction is subject to the fulfillment of customary closing conditions,
including receipt of regulatory approvals.
2017 ANNUAL REPORT 77
DIRECTORS AND EXECUTIVE OFFICERS
The J. M. Smucker Company
DIRECTORS
Kathryn W. DindoA, E
Retired Vice President and
Chief Risk Officer
FirstEnergy Corp.
Akron, Ohio
Elizabeth Valk LongA, E
Retired Executive Vice President
Time Inc.
New York, New York
Mark T. Smucker
President and Chief Executive Officer
The J. M. Smucker Company
Paul J. DolanE
Chairman and Chief Executive Officer
Cleveland Indians
Cleveland, Ohio
Gary A. OateyG
Executive Chairman
Oatey Co.
Cleveland, Ohio
Jay L. HendersonA
Retired Vice Chairman, Client Service
PricewaterhouseCoopers LLP
Chicago, Illinois
Nancy Lopez KnightG
Founder
Nancy Lopez Golf Company
Palm City, Florida
Sandra PianaltoA
Retired President and
Chief Executive Officer
Federal Reserve Bank of Cleveland
Cleveland, Ohio
Alex ShumateG
Managing Partner, North America
Squire Patton Boggs (US) LLP
Columbus, Ohio
Richard K. Smucker
Executive Chairman
The J. M. Smucker Company
Timothy P. Smucker
Chairman Emeritus
The J. M. Smucker Company
A Audit Committee Member; E Executive Compensation Committee Member; G Nominating and Corporate Governance
Committee Member
EXECUTIVE OFFICERS
Richard K. Smucker
Executive Chairman
Barry C. Dunaway
President, Pet Food and Pet Snacks
Steven Oakland
Vice Chair and President, U.S. Food and
Beverage
Mark T. Smucker
President and Chief Executive Officer
Jeannette L. Knudsen
Senior Vice President, General Counsel
and Secretary
Jill R. Penrose
Senior Vice President, Human Resources
and Corporate Communications
Mark R. Belgya
Vice Chair and Chief Financial Officer
David J. Lemmon
President, Canada and International
78 THE J. M. SMUCKER COMPANY
OUR LOCATIONS
The J. M. Smucker Company
CORPORATE OFFICE
Orrville, Ohio
DOMESTIC MANUFACTURING LOCATIONS
Bloomsburg, Pennsylvania
Buffalo, New York
Chico, California
Cincinnati, Ohio
Decatur, Alabama
Grandview, Washington
Harahan, Louisiana
Havre de Grace, Maryland
Lawrence, Kansas
Lexington, Kentucky
Memphis, Tennessee
New Bethlehem, Pennsylvania
New Orleans, Louisiana (3)
Orrville, Ohio
Oxnard, California
Ripon, Wisconsin
Scottsville, Kentucky
Seattle, Washington
Suffolk, Virginia
Toledo, Ohio
Topeka, Kansas
INTERNATIONAL MANUFACTURING LOCATION
Sherbrooke, Quebec, Canada
2017 ANNUAL REPORT 79
SHAREHOLDER INFORMATION
The J. M. Smucker Company
CORPORATE OFFICE
The J. M. Smucker Company
One Strawberry Lane
Orrville, Ohio 44667
Telephone: (330) 682-3000
STOCK LISTING
Our common shares are listed on the New York Stock Exchange —
ticker symbol SJM.
CORPORATE WEBSITE
To learn more about The J. M. Smucker Company,
visit jmsmucker.com.
ANNUAL MEETING
The annual meeting will be held at 11:00 a.m. Eastern Time,
August 16, 2017, at the Ritz-Carlton, 1515 West Third Street,
Cleveland, Ohio 44113.
CORPORATE NEWS AND REPORTS
Corporate news releases, annual reports, and Securities and
Exchange Commission filings, including Forms 10-K, 10-Q, and
8-K, are available free of charge on our website,
jmsmucker.com/investor-relations. They are also available
without cost to shareholders who submit a written request to:
The J. M. Smucker Company
Attention: Corporate Secretary
One Strawberry Lane
Orrville, Ohio 44667
CERTIFICATIONS
Our Chief Executive Officer has certified to the New York Stock
Exchange that he is not aware of any violation by the Company of
the New York Stock Exchange’s corporate governance listing
standards. We have also filed with the Securities and Exchange
Commission certain certifications relating to the quality of our
public disclosures. These certifications are filed as exhibits to our
Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Annual Report includes certain forward-looking statements
that are based on current expectations and are subject to a number
of risks and uncertainties. Please reference “Forward-Looking
Statements” in the “Management's Discussion and Analysis”
section.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
Akron, Ohio
Designed by Corporate Reports Inc. | Atlanta, GA | www.cricommunications.com
80 THE J. M. SMUCKER COMPANY
DIVIDENDS
Our Board of Directors typically declares a cash dividend each
quarter. Dividends are generally payable on the first business day
of March, June, September, and December. The record date is
approximately two weeks before the payment date. Our dividend
disbursement agent is Computershare Investor Services, LLC.
SHAREHOLDER SERVICES
Our transfer agent and registrar, Computershare Investor Services,
LLC, is responsible for assisting registered shareholders with a
variety of matters, including:
• Shareholder investment program (CIPSM)
– Direct purchase of our common shares
– Dividend reinvestment
– Automatic monthly cash investments
• Book-entry share ownership
• Share transfer matters (including name changes, gifting, and
inheritances)
• Direct deposit of dividend payments
• Nonreceipt of dividend checks
• Lost share certificates
• Changes of address
• Online shareholder account access
• Form 1099 income inquiries (including requests for duplicate
copies)
Shareholders may contact Shareholder Services at the corporate
offices regarding other shareholder inquiries.
TRANSFER AGENT AND REGISTRAR
Computershare
P.O. Box 505000
Louisville, KY 40233
Telephone: (800) 456-1169
Telephone outside U.S., Canada, and Puerto Rico:
(312) 360-5254
Website: computershare.com/investor
The J. M. Smucker Company, or its subsidiaries, is the owner of all
trademarks, except for the following, which are used under license:
PillsburyTM is a trademarks of the Pillsbury Company, LLC;
Carnation® is a trademark of Société des Produits Nestlé S.A.;
Dunkin’ Donuts® is a trademark of DD IP Holder, LLC; and K-
Cup® is a trademark of Keurig Green Mountain, Inc.
OUR PORTFOLIO OF
LEADING AND
EMERGING BRANDS
OUR VISION
Engage, delight, and inspire consumers through trusted food
and beverage brands that bring joy throughout their lives.
A portfolio that combines #1 and leading brands with emerging, on-trend brands
to drive balanced growth.
®
#1
#1
#1
#1
#1
#2
12%
17%
JIF
Market Share
Peanut Butter
FOLGERS
Market Share
At-Home
Coffee Brand
SMUCKER'S
Market Share
Fruit Spreads
MILK-BONE
Market Share
Dog Snacks
ROBIN HOOD
Market Share
Flour in Canada
DUNKIN'
DONUTS
Market Share
Premium Bagged
Coffee
CAFÉ
BUSTELO
5-Year Compound
Annual Growth Rate
SMUCKER’S
UNCRUSTABLES
15-Year Compound
Annual Growth Rate
™ A N N U A L R E P O R T
WHY WE ARE
WHO WE ARE
A culture of doing the right things and
doing things right…
Of dotting the i’s and crossing the t’s…
A culture of growth—individual and as a company.
A result of living our Basic Beliefs…
Our Commitment to Each Other, to our consumers,
and to our customers.
As we look to the future of unlimited possibilities,
we recognize the principles that are instrumental
to our success:
A culture deeply rooted in our Basic Beliefs,
guideposts for decisions at every level;
A culture that encourages commitment to each other,
clear communication and collaboration;
A culture of appreciation;
A family-sense of sharing in a job well done;
Where every person makes a difference.
One Strawberry Lane • Orrville, Ohio 44667 • 330.682.3000
jmsmucker.com
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