TH E J .M . SMU CKER C O MPAN Y
FISC AL YEAR 2 0 19 ANNUAL RE P ORT
S MUCK ER AT
A GLA NCE
90%
of U.S. Homes
Have a Smucker
Product in the
Pantry
Over
7,000
Talented & Experienced
Employees
OUR
PURPOSE
Feeding Connections That
Help Us Thrive —
Life Tastes Better Together
$7.8 Billion
Net Sales
Smucker
Family-Led for
120+ Years
Headquartered in
Orrville, Ohio
More Than
30
Locations Across
North America
2
THE J.M. SMUCKER COMPANY
FISCAL YEAR 2019 ANNUAL REPORT
1
D E AR F E LL OW SHARE HO LDE RS,
Fiscal year 2019 was a time of purposeful and productive change at
The J.M. Smucker Company.
Over the course of the year, we took meaningful actions to better align our
portfolio with consumer trends and preferences while positioning us to deliver
on our fi nancial priorities and create long-term value for our shareholders.
o We completed the integration of Ainsworth Pet Nutrition and the
divestiture of the U.S. baking business as we continue the transformation
of our portfolio to better align with consumer preferences and drive
sustained growth.
o We successfully launched 1850 ® coffee, Jif Power Ups ® snacks and
Milk-Bone® long-lasting chews – three major innovation platforms that
we will build upon for years to come.
o We made signifi cant progress in creating world-class marketing and
innovation functions, ensuring that both our high-growth brands and our
leading brands remain well positioned to be consumers’ preferred choice.
o We made crucial investments in our Company. This included the startup
of our new Smucker’s ® Uncrustables® manufacturing facility and the
implementation of new technologies and enhanced data and analytics
through the achievement of important cost-management and synergy
milestones – including our Right Spend initiative.
o We signed a major renewable energy agreement that will reduce our
greenhouse gas emissions, provide a long-term supply of wind-powered
energy and make a lasting contribution to our nation’s renewable
energy capacity.
Through these initiatives and the hard work of our employees, we returned
to growth in fi scal year 2019, reporting a 7 percent year-over-year increase
in net sales to over $7.8 billion, primarily driven by the acquisition of Ainsworth
and new product innovation. Financial highlights from the past fi scal year include:
o Diluted earnings per share of $4.52. Adjusted earnings per share was
$8.29, an increase of 4 percent.
o Year-over-year sales increase of 16 percent for our Company’s growth
brands, which are led by Rachael Ray™ Nutrish®, Dunkin’ Donuts® and
Smucker’s® Uncrustables®.
o Delivery of $420 million in net sales from new products introduced in the
past three years.
o Achievement of our synergy and cost savings goals, allowing signifi cant
reinvestment in support of new innovation and our brands.
o Continued our long history of increasing dividends paid to shareholders
with an 8 percent increase in the annual dividend rate.
LI FE
TASTES
BETTER
TO GET HE R
2
THE J.M. SMUCKER COMPANY
FISCAL YEAR 2019 ANNUAL REPORT
3
In our quest to engage, delight and inspire
consumers through brands that bring joy
throughout their lives, we were guided in
fi scal year 2019 by three strategic imperatives:
o To lead in the best categories
o To build brands consumers love
o To be everywhere
LEA D IN TH E BES T CATE GORI ES
BUILD BRANDS CONSUMERS LOVE
Over the past few years, through a combination
of acquisitions, divestitures and innovation, we
have substantially reshaped our product portfolio
to focus on three higher-growth macro categories:
Pet Food & Snacks, Coffee and Consumer Snacking.
These categories represent a 25 percent larger total
addressable market than those we participated in
fi ve years ago, powered in part by our iconic, leading
brands, including Milk-Bone ®, Folgers® and Jif ®.
Complementing these leading brands is a strong
portfolio of high-growth brands, including Rachael
Ray™ Nutrish®, Nature’s Recipe®, Dunkin’ Donuts®,
Café Bustelo ®, 1850 ®, Smucker’s ® Uncrustables®,
Jif Power Ups ® and Sahale Snacks ®.
Together, our leading and high-growth brands
provide us with a comprehensive offering across
each of our categories that allows us to serve the
changing needs of consumers. In fact, at least
one of our products can be found in 90 percent
of U.S. households – a testament to the strength
of our brands and their role in the daily lives of
consumers and pet parents.
This powerful portfolio will allow us to deliver sales
growth of 2 to 3 percent annually – supported by
our high-growth brands, which now account for
$2 billion in sales annually and are projected to
achieve a high single-digit growth rate over the
next fi ve years.
To succeed in these growing categories, we must
maintain a relentless focus on the consumer.
There’s never been a more important time to build
brands given changing consumer preferences and
increased competition not only from established
food companies, but also from start-ups and
private label producers.
That’s why we continue to invest in our brands
through innovation, marketing and consumer
engagement efforts. During the past 24 months,
we have transformed our innovation and marketing
organizations, built new data-driven consumer
insights capabilities, expanded our omnichannel
focus and streamlined our agency relationships
through our Power of One marketing model.
These changes have signifi cantly enhanced our
ability to understand changing consumer demand
and adjust our product portfolio accordingly.
For example, building on the successful launches
of 1850 ® coffee and Jif Power Ups ® snacks, we are
now introducing our fi rst line extensions of these
brands: single-origin varieties of 1850 ® coffee, as
well as a variety of new bars and snacks within the
Jif Power Ups ® family.
We are also bringing innovation to our established
brands by introducing Folgers ® Noir ™, a dark-roast
line of Folgers ® coffee and Smucker’s ® Mosaics™,
a new line of Smucker’s ® fruit spreads featuring
unique fl avor combinations with real sugar and
no added preservatives or colors. In both cases,
these innovations were driven by clearly articulated
consumer preferences.
At the same time, we have placed a renewed
emphasis on marketing. In fi scal year 2019,
we increased marketing spend as a percent
of net sales by 100+ basis points – to 7 percent
of net sales. This investment comes with fresh
strategic thinking and bold new creative to engage
consumers more meaningfully while ensuring our
brands truly stand for something. We are excited
for consumers to experience the breakthrough
creative strategies we have planned for fi scal
year 2020.
BE EVERYWHERE
Our fi nal strategic imperative is to be everywhere
consumers want us to be – regardless of where,
when or how they shop. We are fortunate to have
several ways to achieve this objective.
E-commerce is a major strategic focus for our Company
and an area where we are making excellent progress.
Pure-play e-commerce sales this past year were up
more than 50 percent – driven largely by pet food and
coffee, which are particularly well suited to consumers’
digital shopping habits and their preference for
subscription-based shopping. In fi scal year 2019, sales
of both our pet food and coffee products grew faster
than their respective categories on Amazon. We are
also developing our direct-to-consumer platforms,
including our third-party seller platform on Amazon.
Our Away From Home business also plays a critical
role in our success – particularly channels outside
our core foodservice markets. As a result, you can
now fi nd our snacking products in more convenience
stores, movie theaters, gyms, hospitals and universities
than ever before.
Lastly, we are increasingly leveraging new analytics
capabilities to make ourselves a stronger partner
for our retail customers. We work with retailers to
maximize physical and digital real estate – which
includes using micro-targeted economic data to
provide recommendations on how they can
optimize their merchandising approach
to deliver the ideal shopping
experience for consumers.
LOOKING AHEAD
We are proud of all we
have achieved this year
and are eager to build
on the momentum we
created in the second
half of fi scal year 2019.
With an in-demand
portfolio, enhanced
capabilities and the
dedication of our more
than 7,000 employees,
we are in a strong position
to thrive along with all our
constituents in fi scal year
2020. We will continue to
focus on driving growth while
enhancing the positive impact we
have on our employees, shareholders,
business partners, local communities and
the planet.
We would like to thank all who have contributed
to our success this past year – particularly our
employees for their unwavering dedication to our
Company and passionate advocacy of our brands,
and to you, our shareholders, for your continued
support and confi dence in our Company.
Mark Smucker
President and Chief Executive Offi cer
Richard Smucker
Richard Smucker
Executive Chairman
Executive Chairman
Timothy Smucker
Chairman Emeritus
4
THE J.M. SMUCKER COMPANY
FISCAL YEAR 2019 ANNUAL REPORT
5
LEA DING A TRANSFO R MAT IO N
Our Company began with a single product –
apple butter. From that humble beginning, we
have consistently evolved based on the needs
of consumers and our commitment to deliver
a quality product at a fair price.
This Executive Leadership Team combines the
deep experience necessary to deliver the highest
quality that consumers expect from our brands
and a commitment to never stand still – ensuring
we are getting better every single day.
The last few years have seen some of the most
exciting changes in the Company’s more than
120-year history. Overseeing this period of necessary
change is a passionate leadership team that is
committed to ensuring we are a strategic partner
to our customers, providing products our consumers
truly want, delivering strong fi nancial performance
and retaining our focus on developing our culture
and people as we grow.
Their vision and courage of conviction has supported
this dramatic transformation, which has positioned
our Company to reach new heights. And, with their
leadership, we truly believe the best is yet to come.
Here are just some of the important advances we
have made under the guidance of our Executive
Leadership Team and through the hard work of
our employees:
Transformed our
product portfolio
to lead in the
best categories
Introduced new
innovation and
marketing models
to build brands
consumers love
Scaled our e-commerce
business as part of
our commitment to
be everywhere
Consolidated
operations to deliver
greater effi ciency
Executed cost savings
programs and realized
synergies creating funds
for further growth
Infused enhanced data
capabilities throughout
our business to improve
decision-making
Expanded our
sustainability
and corporate
philanthropic efforts
Maintained our unique
people-focused culture
as we expanded
our business
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 10-K
________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-5111
_______________________________________________
THE J. M. SMUCKER COMPANY
(Exact name of registrant as specified in its charter)
________________________________________________
Ohio
(State or other jurisdiction of
incorporation or organization)
One Strawberry Lane
Orrville, Ohio
(Address of principal executive offices)
34-0538550
(I.R.S. Employer
Identification No.)
44667-0280
(Zip code)
Registrant’s telephone number, including area code (330) 682-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares, no par value
Trading symbol
SJM
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2018, was $11,679,828,981. As of
June 10, 2019, 113,742,653 common shares of The J. M. Smucker Company were issued and outstanding.
Certain sections of the registrant’s definitive Proxy Statement to be filed in connection with its Annual Meeting of Shareholders to be held
on August 14, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Page No.
Item 1.
Business.
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II.
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Signatures
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7
15
16
16
16
17
18
19
32
34
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74
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75
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The Company: The J. M. Smucker Company (“Company,” “registrant,” “we,” “us,” or “our”), often referred to as
Smucker’s (a registered trademark), was established in 1897 and incorporated in Ohio in 1921. We operate principally in one
industry, the manufacturing and marketing of branded food and beverage products on a worldwide basis, although the
majority of our sales are in the U.S. Our operations outside the U.S. are principally in Canada, although products are exported
to other countries as well. Net sales outside the U.S., subject to foreign currency translation, represented 5 percent of
consolidated net sales for 2019. Our branded food and beverage products include a strong portfolio of trusted, iconic, market-
leading brands that are sold to consumers through retail outlets in North America.
On May 14, 2018, we completed the acquisition of Ainsworth Pet Nutrition, LLC (“Ainsworth”), a leading producer,
distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S. The majority of Ainsworth’s
sales are generated by the Rachael Ray® Nutrish® brand, which is driving significant growth in the premium pet food
category. The all-cash transaction, which was funded with debt, was valued at $1.9 billion. For further information, refer to
Note 2: Acquisition.
On August 31, 2018, we sold our U.S. baking business to Brynwood Partners VII L.P. and Brynwood Partners VIII L.P.,
subsidiaries of Brynwood Partners, an unrelated party. The transaction included products that were primarily sold in U.S.
retail channels under the Pillsbury®, Martha White®, Hungry Jack®, White Lily®, and Jim Dandy® brands, along with all
relevant trademarks and licensing agreements, and our manufacturing facility in Toledo, Ohio. This business generated net
sales of approximately $370.0 million in 2018. The transaction did not include our baking business in Canada. For further
information, refer to Note 4: Divestiture.
On March 23, 2015, we completed the acquisition of Big Heart Pet Brands (“Big Heart”), a leading producer, distributor, and
marketer of premium, branded pet food and pet snacks in the U.S. The cash and stock transaction was 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. We assumed $2.6 billion in debt that we repaid at closing and paid an additional $1.2 billion in
cash.
We have four reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International
and Away From Home. The U.S. retail market segments in total comprised 86 percent of 2019 consolidated net sales 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. The International and Away From Home segment represents sales outside
of the U.S. retail market segments.
Principal Products: Our principal products as of April 30, 2019, are coffee, dog food, pet snacks, cat food, peanut butter,
fruit spreads, frozen handheld products, shortening and oils, portion control products, juices and beverages, and flour and
baking ingredients. Product sales information for the years 2019, 2018, and 2017 is included within Note 5: Reportable
Segments.
In the U.S. retail market segments, our products are primarily sold through a combination of direct sales and brokers to food
retailers, club stores, pet specialty stores, discount and dollar stores, food wholesalers, online retailers, drug stores, natural
foods stores and distributors, military commissaries, and mass merchandisers. In the International and Away From Home
segment, our products 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).
Sources and Availability of Raw Materials: The raw materials used in each of our segments are primarily commodities and
agricultural-based products. Green coffee, peanuts, animal protein meals, oils and fats, sweeteners, grains, fruit, and other
ingredients are obtained from various suppliers. The availability, quality, and costs of many of these commodities have
fluctuated, and may continue to fluctuate, over time. Basis, futures, options, and fixed price contracts are used to manage
price volatility for a significant portion of our commodity costs. Green coffee, along with certain other raw materials, is
sourced solely from foreign countries and its supply and 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 source peanuts, animal protein meals, and oils and fats mainly from North America. The principal packaging materials we
use are plastic, glass, metal cans, caps, carton board, and corrugate. For additional information on the commodities we
2
purchase, see “Commodities Overview” within Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
experience significant seasonality. The divestiture of the U.S. baking business and the acquisition of Ainsworth during 2019
are expected to reduce the seasonality of our overall working capital requirements.
Raw materials are generally available from numerous sources, although we have elected to source certain plastic packaging
materials from single sources of supply pursuant to long-term contracts. While availability may vary year-to-year, we believe
that we will continue 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 raw material
suppliers to be in good standing.
Trademarks and Patents: Our products are produced under certain patents and marketed under trademarks owned or
licensed by us or one of our subsidiaries. Our major trademarks as of April 30, 2019, are listed below.
Primary Reportable Segment
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
Major Trademark
Folgers®, Dunkin’ Donuts®, and Café Bustelo®
Smucker’s®, Jif®, Uncrustables®, and Crisco®
Rachael Ray Nutrish, Meow Mix®, Milk-Bone®, Natural Balance®, Kibbles
‘n Bits®, 9Lives®, Nature’s Recipe®, and Pup-Peroni®
Folgers and Smucker’s
Dunkin’ Donuts is a registered trademark of DD IP Holder LLC used under two licenses (the “Dunkin’ Licenses”) for
packaged coffee products, including K-Cup® pods, sold in retail channels such as grocery stores, mass merchandisers, club
stores, and drug stores. The Dunkin’ Licenses do not pertain to Dunkin’ Donuts coffee or other products for sale in Dunkin’
Donuts restaurants. The terms of the Dunkin’ Licenses include the payment of royalties to an affiliate of DD IP Holder LLC
and other financial commitments by the Company. The Dunkin’ Licenses are in effect until January 1, 2039.
We utilize Rachael Ray’s image and likeness and related Rachael Ray trademarks for premium pet food and pet snacks under
an exclusive license which expires in 2063. The terms of the license include the payment of royalties to The Rachael Ray
Foundation. Rachael Ray is a registered trademark of Ray Marks II LLC. Keurig® and K-Cup® are trademarks of Keurig
Green Mountain, Inc. (“Keurig”), used with permission. In addition, we and our subsidiaries license the use of several other
trademarks, none of which are individually material to our business.
Slogans or designs considered to be important trademarks include, without limitation, “With A Name Like Smucker’s, It Has
To Be Good®,” “The Best Part of Wakin’ Up Is Folgers In Your Cup®,” “Choosy Moms Choose Jif®,” “Purely The Finest®,”
“Goodness Gracious, It’s Good®,” “The Only One Cats Ask For By Name®,” “Say It With Milk-Bone®,” the Smucker’s banner,
the Crock Jar shape, the Gingham design, the Mountain Grown design, and the Smucker’s Strawberry, Jif, Milk-Bone, and
9Lives logos.
We own several hundred patents worldwide in addition to proprietary trade secrets, technology, know-how processes, and
other intellectual property rights that are not registered.
We consider all of our owned and licensed intellectual property, taken as a whole, to be essential to our business.
Seasonality: The U.S. Retail Coffee and U.S. Retail Consumer Foods segments have historically been seasonal around the
Fall Bake and Holiday period, which generally resulted in higher sales and profits in our second and third quarters. Our
success in promoting and merchandising our coffee and baking brands during the Fall Bake and Holiday period has had a
significant impact on our results for a fiscal year. The Back to School period and the Spring Holiday season are two other
important promotional periods.
As a result of the U.S. baking business divestiture during the second quarter of 2019, we expect that the U.S. Retail
Consumer Foods segment will experience less seasonality. Additionally, the U.S. Retail Pet Foods segment, which grew
during 2019 as a result of the Ainsworth acquisition during the first quarter, does not experience significant seasonality,
further reducing the overall impact of seasonality to the total Company.
Working Capital: Working capital requirements have historically been greatest during the first half of our fiscal year mainly
due to the timing of the buildup of coffee, oil, and baking inventories necessary to support the Fall Bake and Holiday period
and the additional buildup of coffee inventory in advance of the Atlantic hurricane season. The impact of seasonality on our
overall working capital requirements has been partially reduced by the U.S. Retail Pet Foods segment, which does not
Customers: Sales to Walmart Inc. and subsidiaries amounted to 32 percent, 31 percent, and 30 percent of net sales in 2019,
2018, and 2017, respectively. These sales are primarily included in the U.S. retail market segments. No other customer
exceeded 10 percent of net sales during 2019, 2018, or 2017.
During 2019, our top 10 customers, collectively, accounted for approximately 60 percent of consolidated net sales.
Supermarkets, warehouse clubs, and food distributors continue to consolidate, and we expect that a significant portion of our
revenues will continue to be derived from a limited number of customers. Although the loss of any large customer for an
extended length of time could negatively impact our sales and profits, we do not anticipate that this will occur to a significant
extent due to strong consumer demand for our brands.
Orders: Generally, orders are filled within a few days of receipt, and the backlog of unfilled orders at any particular time has
not been material on a historical basis.
Government Business: No material portion of our business is subject to renegotiation of profits or termination of contracts
at the election of the government.
Competition: We are the branded market leader in the coffee, dog snacks, peanut butter, fruit spreads, natural shelf stable
juices, shortening, and ice cream toppings categories in the U.S. In Canada, we are the branded market leader in the flour,
pickles, fruit spreads, canned milk, shortening, and ice cream toppings categories. Our business is highly competitive as all of
our brands compete for retail shelf space with other branded products as well as private label products.
In order to remain competitive, companies in the food industry need to consider emerging consumer preferences,
technological advances, product and packaging innovations, and the growth of certain retail channels, such as the
e-commerce market. The primary ways in which products and brands are distinguished are brand recognition, product quality,
price, packaging, new product introductions, nutritional value, convenience, advertising, promotion, and the ability to
identify and satisfy consumer preferences. Positive factors pertaining to our competitive position include well-recognized
brands, high-quality products, consumer trust, experienced brand and category management, a single national grocery broker
in the U.S., varied product offerings, product innovation, good customer service, and an integrated distribution network.
The packaged foods industry has been challenged by a general decline in sales volume in the center of the store. Certain
evolving consumer trends have contributed to the decline, such as a heightened focus on health and wellness, an increased
desire for fresh foods, and the growing impact of social media and e-commerce on consumer behavior. To address these
dynamics, we continue to focus on innovation with an increased emphasis on products that satisfy evolving consumer trends.
In addition, private label continues to be a competitor in many of the categories in which we compete, partially due to
improvements in private label quality and the increased emphasis of store brands by retailers in an effort to cultivate customer
loyalty. In our total U.S. retail categories, private label held a 16.6 dollar average market share during the 52 weeks ended
April 21, 2019, as compared to a 16.4 dollar average market share during the same period in the prior year. We believe that
both private label and leading brands play an important role in the categories in which we compete, appealing to different
consumer segments. We closely monitor the price gap or price premium between our brands and private label brands, with
the view that value is about more than price and the expectation that number one brands will continue to be an integral part of
consumers’ shopping baskets.
3
4
Our primary brands and major competitors as of April 30, 2019, are listed below.
Our Primary Products
Our Primary Brands
Competing Brands
Competitors
U.S. Retail Coffee
Mainstream roast and ground coffee
Folgers(A) and Café Bustelo
Maxwell House, McCafe, and Yuban
The Kraft Heinz Company
Single serve coffee - K-Cup®
Dunkin’ Donuts, Folgers, Café
Bustelo, and 1850TM
Private Label Brands
Chock full o’Nuts
Cafe La Llave
Green Mountain Coffee(A)
Starbucks
Private Label Brands
Premium coffee
Dunkin’ Donuts and 1850
McCafe, Maxwell House, and Gevalia
Starbucks(A) and Seattle’s Best Coffee
Private Label Brands
Peet’s Coffee & Tea
Eight O’Clock
Gevalia and McCafe
Various
Massimo Zanetti Beverage Group
F. Gaviña & Sons, Inc.
JAB Holding Company
Nestlé S.A.
Various
The Kraft Heinz Company
Nestlé S.A.
Various
JAB Holding Company
Tata Global Beverages Limited
The Kraft Heinz Company
U.S. Retail Consumer Foods
Peanut butter and specialty spreads
Jif (A)
Private Label Brands
Various
Fruit spreads
Shortening and oils
Smucker’s(A)
Crisco(B)
Skippy
Nutella
Peter Pan
Welch’s
Private Label Brands
Private Label Brands(B)
Wesson
Hormel Foods Corporation
Ferrero SpA
Conagra Brands, Inc.
Welch Foods Inc.
Various
Various
Richardson International Ltd.
Frozen sandwiches
Smucker’s Uncrustables(A)
AdvancePierre Foods PB Jamwich
Tyson Foods, Inc.
Skippy P.B. & Jelly Minis
Hormel Foods Corporation
U.S. Retail Pet Foods
Mainstream pet food
Meow Mix, Kibbles ‘n Bits,
9Lives, and Nature’s Recipe
Dog Chow(A), One, Beneful, Cat
Chow(A), Friskies, Kit & Kaboodle, and
Fancy Feast
Pedigree, Iams, and Sheba
Nestlé Purina PetCare Company
Mars, Incorporated
Pet snacks
Milk-Bone(A) and Pup-Peroni
Beggin’ Strips and Waggin’ Train
Nestlé Purina PetCare Company
Premium pet food
Rachael Ray Nutrish and Natural
Balance
Dentastix and Greenies
Blue Buffalo(A)
Mars, Incorporated
General Mills, Inc.
Nutro
Hill’s
Mars, Incorporated
Hill’s Pet Nutrition, Inc.
Pro Plan and Merrick
Nestlé Purina PetCare Company
International and Away From Home
Foodservice hot beverage
Folgers
Foodservice portion control
Smucker’s and Jif
Canada coffee
Folgers
Nescafé
Maxwell House
Private Label Brands
Heinz, Welch’s, and Private Label
Brands
Private Label Brands
Tim Hortons(A)
Maxwell House
Private Label Brands
Canada flour
Robin Hood®(A) and Five Roses®
Private Label Brands
Société des Produits Nestlé S.A.
The Kraft Heinz Company
Various
The Kraft Heinz Company
Various
Restaurant Brands International Inc.
The Kraft Heinz Company
Various
Various
(A) Identifies the current market leader within the product category. In certain categories, the market leader is not identified as two or
more brands compete for the largest share.
(B) Crisco is the market leader within the shortening category. In the oils category, private label brands, collectively, maintain the largest
share.
Environmental Matters: Compliance with environmental regulations and environmental sustainability is a key strategic
focus as we consider it to be our responsibility as a good corporate citizen. We have public goals related to waste diversion,
water usage intensity reduction, and greenhouse gas emissions intensity reduction. We have implemented and manage a
variety of programs across our operations, including energy optimization, the utilization of renewable energy, water
conservation, the reuse of resources, and the support of farmers who implement sustainable practices, in support of our
commitment to environmental sustainability. We continue to evaluate and modify our processes on an ongoing basis to
further reduce waste and limit our impact on the environment.
Compliance with the provisions of enacted or pending federal, state, and local environmental regulations regarding either the
discharge of materials into the environment or the protection of the environment is not expected to have a material effect
upon our capital expenditures, earnings, or competitive position in 2020.
Employees: At April 30, 2019, we had approximately 7,400 full-time employees worldwide, of which 24 percent, located at
nine manufacturing locations, are covered by union contracts. These contracts vary in term depending on location, with seven
contracts expiring in 2020, representing 19 percent of our total employees. We believe our relations with our employees are
good.
Information about our Executive Officers: The names, ages as of June 15, 2019, and current positions of our executive
officers are listed below. All executive officers serve at the pleasure of the Board of Directors, with no fixed term of office.
Name
Richard K. Smucker
Mark T. Smucker
Mark R. Belgya
Tina R. Floyd
Amy C. Held
Kevin G. Jackson
Jeannette L. Knudsen
David J. Lemmon
Jill R. Penrose
Joseph Stanziano
Age
71
49
58
53
45
52
49
51
46
52
Years
with
Company
46
21
34
24
6
17
16
25
15
22
Position
Executive Chairman (A)
President and Chief Executive Officer (B)
Vice Chair and Chief Financial Officer (C)
Senior Vice President and General Manager, Consumer Foods (D)
Senior Vice President, Corporate Strategy, M&A, and International (E)
Senior Vice President, U.S. Retail Sales and Away From Home (F)
Senior Vice President, General Counsel and Secretary (G)
President, Pet Food and Pet Snacks (H)
Senior Vice President, Human Resources and Corporate
Communications (I)
Senior Vice President and General Manager, Coffee (J)
Served as
an Officer
Since
1974
2001
1997
2018
2018
2018
2009
2012
2014
2018
(A) Mr. Richard Smucker was elected to his present position in May 2016, having served as Chief Executive Officer since
August 2011.
(B) Mr. Mark Smucker was elected to his present position in May 2016, having served as President and President, Consumer
and Natural Foods since April 2015. Prior to that time, he served as President, U.S. Retail Coffee since May 2011.
(C) Mr. Belgya was elected to his present position in May 2016, having served as Senior Vice President and Chief Financial
Officer since October 2009.
(D) Ms. Floyd was elected to her present position in February 2018, having served as Vice President and General Manager,
Foodservice since February 2016. Prior to that time, she served as Vice President, Marketing – Consumer Foods since
April 2012.
(E) Ms. Held was elected to her present position in July 2018, having served as Senior Vice President, Strategy and M&A
since March 2018. Prior to that time, she served as Vice President, Corporate Strategy and Development since May 2016
and Director, Corporate Strategy and Development since February 2013.
(F) Mr. Jackson was elected to his present position in June 2018, having served as Senior Vice President, U.S. Retail Sales
and Marketing Services since February 2018. Prior to that time, he served as Senior Vice President, U.S. Retail Sales and
Market Development Organization since October 2017, Vice President, U.S. Retail Sales and Market Development
Organization since January 2016, and Vice President and General Manager, Foodservice since May 2014.
(G) Ms. Knudsen was elected to her present position in May 2016, having served as Vice President, General Counsel and
Corporate Secretary since August 2010.
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(H) Mr. Lemmon was elected to his present position in June 2018, having served as President, Canada, International, and
U. S. Away From Home since August 2017. Prior to that time, he served as Vice President and General Manager,
International since January 2016, Vice President and Managing Director, Canada and International since April 2015, and
Vice President and Managing Director, Canada since May 2012.
(I) Ms. Penrose was elected to her present position in May 2016, having served as Vice President, Human Resources since
June 2014. Prior to that time, she served as Vice President, Strategy and Organization Development since April 2010.
(J) Mr. Stanziano was elected to his present position in February 2018, having served as Senior Vice President and General
Manager, Consumer Foods since October 2017. Prior to that time, he served as Vice President and General Manager,
Consumer since February 2016 and Vice President, General Manager - Peanut Butter and Snacking since April 2012.
Available Information: Access to all of our Securities and Exchange Commission (“SEC”) filings, including our Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
provided, free of charge, on our website (jmsmucker.com/investor-relations/smuckers-sec-filings) as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the SEC.
Item 1A. Risk Factors.
Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described
below should be carefully considered, together with the other information contained or incorporated by reference in this
Annual Report on Form 10-K and our other filings with the SEC, in connection with evaluating the Company, our business,
and the forward-looking statements contained in this Annual Report. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may affect us. The occurrence of any of these known or unknown risks could
have a material adverse impact on our business, financial condition, and results of operations.
We may be unable to grow market share of our products.
We operate in the competitive food industry whose growth potential is positively correlated to population growth. Our
success depends in part on our ability to grow our brands faster than the population in general. We consider our ability to
build and sustain the equity of our brands critical to our market share growth. If we do not succeed in these efforts, our
market share growth may slow, which could have a material impact on our results of operations.
Our proprietary brands, packaging designs, and manufacturing methods are essential to the value of our business, and
the inability to protect these could harm the value of our brands and adversely affect our sales and profitability.
The success of our business depends significantly on our brands, know-how, and other intellectual property. We rely on a
combination of trademarks, service marks, trade secrets, patents, copyrights, and similar rights to protect our intellectual
property. The success of our growth strategy depends on our continued ability to use our existing trademarks and service
marks in order to maintain and increase brand awareness and further develop our brands. If our efforts to protect our
intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, the value
of our brands may be harmed, which could have a material adverse effect on our business. From time to time, we are engaged
in litigation to protect our intellectual property, which could result in substantial costs as well as diversion of management
attention.
In particular, we consider our proprietary coffee roasting methods essential to the consistent flavor and richness of our coffee
products and, therefore, essential to our coffee brands. Because many of the roasting methods we use are not protected by
patents, it may be difficult for us to prevent competitors from copying our roasting methods if such methods become known.
We also believe that our packaging innovations, such as our AromaSeal™ canisters, are important to the coffee business’
marketing and operational efforts. If our competitors copy our roasting or packaging methods or develop more advanced
roasting or packaging methods, the value of our coffee brands may be diminished, and we could lose customers to our
competitors.
We use a single national broker to represent a portion of our branded products to the retail grocery trade and any failure
by the broker to effectively represent us could adversely affect our business.
We use a single national broker in the U.S. to represent a portion of our branded products to the retail grocery trade. Our
business would suffer disruption if this broker were to fail to perform brokerage services or to effectively represent us to the
retail grocery trade, which could adversely affect our business.
Loss or interruption of supply from single-source suppliers of raw materials and finished goods could have a disruptive
effect on our business and adversely affect our results of operations.
We have elected to source certain raw materials, such as packaging for our Folgers coffee products, as well as our Jif peanut
butter and Crisco oil products, and finished goods, such as K-Cup® pods and our Pup-Peroni dog snacks, from single sources
of supply. While we believe that, except as set forth below, alternative sources of these raw materials and finished goods
could be obtained on commercially reasonable terms, loss or an extended interruption in supplies from a single-source
supplier would result in additional costs, could have a disruptive short-term effect on our business, and could adversely affect
our results of operations.
Keurig is our single-source supplier for K-Cup® pods, which are used in its proprietary Keurig® K-Cup® brewing system.
There are a limited number of manufacturers other than Keurig that are making cups that will work in such proprietary
brewing system. If Keurig is unable to supply K-Cup® pods to us for any reason, it could be difficult to find an alternative
supplier for such goods on commercially reasonable terms, which could have a material adverse effect on our results of
operations.
Our results may be adversely impacted as a result of increased cost, limited availability, and/or insufficient quality of raw
materials, including commodities and agricultural products.
We and our business partners purchase and use large quantities of many different commodities and agricultural products in
the manufacturing of our products, including green coffee, peanuts, animal protein meals, oils and fats, sweeteners, grains,
and fruit. In addition, we and our business partners utilize significant quantities of plastic, glass, and cardboard to package
our products and natural gas and fuel oil to manufacture, package, and distribute our products. The prices of these
commodities, agricultural products, and other materials are subject to volatility and can fluctuate due to conditions that are
difficult to predict, including global supply and demand, commodity market fluctuations, crop sizes and yield fluctuations,
weather, natural disasters, foreign currency fluctuations, investor speculation, trade agreements, political unrest, consumer
demand, and changes in governmental agricultural programs. In addition, we compete for certain raw materials, notably corn
and soy-based agricultural products, with the biofuels industry, which has resulted in increased prices for these raw materials.
Additionally, farm acreage currently devoted to other agricultural products we purchase may be utilized for biofuels crops
resulting in higher costs for the other agricultural products we utilize. Although we use basis, futures, options, and fixed price
contracts to manage commodity price volatility in some instances, commodity price increases ultimately result in
corresponding increases in our raw material and energy costs.
Due to the significance of green coffee to our coffee business, combined with our ability to only partially mitigate future
price risk through purchasing practices and hedging activities, significant increases or decreases in the cost of green coffee
could have an adverse impact on our profitability, as compared to that of our competitors. In addition, if we are not able to
purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, we may
not be able to fulfill the demand for our coffee, which could have a material adverse effect on our business, financial
condition, and results of operations.
Our efforts to manage commodity, foreign currency exchange, and other price volatility through derivative instruments
could adversely affect our results of operations and financial condition.
We use derivative instruments, including commodity futures and options, to reduce the price volatility associated with
anticipated commodity purchases. The extent of our derivative position at any given time depends on our assessment of the
markets for these commodities. If we fail to take a derivative position and costs subsequently increase, or if we institute a
position and costs subsequently decrease, our costs may be greater than anticipated or higher than our competitors’ costs and
our financial results could be adversely affected. In addition, our liquidity may be adversely impacted by the cash margin
requirements of the commodities exchanges or the failure of a counterparty to perform in accordance with a contract.
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We currently do not qualify any of our commodity or foreign currency exchange derivatives for hedge accounting. We
instead mark-to-market our derivatives through the Statement of Consolidated Income, which results in changes in the fair
value of all of our derivatives being immediately recognized in consolidated earnings, resulting in potential volatility in both
gross profit and net income. These gains and losses are reported in cost of products sold in our Statement of Consolidated
Income but are excluded from our segment operating results and non-GAAP earnings until the related inventory is sold, at
which time the gains and losses are reclassified to segment profit and non-GAAP earnings. Although this accounting
treatment aligns the derivative gains and losses with the underlying exposure being hedged within segment results, it may
result in volatility in our consolidated earnings.
We may be limited in our ability to pass cost increases on to our customers in the form of price increases or may realize a
decrease in sales volume to the extent price increases are implemented.
We may not be able to pass some or all of any increases in the price of raw materials, energy, and other input costs to our
customers by raising prices. To the extent competitors do not also increase their prices, customers and consumers may choose
to purchase competing products or may shift purchases to private label or other lower-priced offerings, which may adversely
affect our results of operations.
Consumers may be less willing or able to pay a price differential for our branded products and may increasingly purchase
lower-priced offerings and may forego some purchases altogether, especially during economic downturns. Retailers may also
increase levels of promotional activity for lower-priced offerings as they seek to maintain sales volumes during times of
economic uncertainty. Accordingly, sales volumes of our branded products could be reduced or lead to a shift in sales mix
toward our lower-margin offerings. As a result, decreased demand for our products may adversely affect our results of
operations.
Certain of our products are produced at single manufacturing sites.
We have consolidated our production capacity for certain products into single manufacturing sites, including substantially all
of our coffee, Milk-Bone dog snacks, fruit spreads, toppings, and syrups. We could experience a production disruption at
these or any of our manufacturing sites resulting in a reduction or elimination of the availability of some of our products. If
we are not able to obtain alternate production capability in a timely manner, our business, financial condition, and results of
operations could be adversely affected.
A significant interruption in the operation of any of our supply chain or distribution capabilities could have an adverse
effect on our business, financial condition, and results of operations.
Our ability and the ability of our third-party suppliers and service providers, distributors, and contract manufacturers to
manufacture, distribute, and sell products is critical to our success. A significant interruption in the operation of any of our
manufacturing or distribution capabilities, or the manufacturing or distribution capabilities of our suppliers, distributors, or
contract manufacturers, or a service failure by a third-party service provider, whether as a result of adverse weather
conditions or a natural disaster, work stoppage, terrorism, pandemic illness, or other causes, could significantly impair our
ability to operate our business. Notably, substantially all of our coffee production takes place in New Orleans, Louisiana,
which is subject to risks associated with hurricane and other weather-related events. Additionally, some of our production
facilities are located in places where tornadoes or wildfires can frequently occur, such as Alabama, Kansas, and California.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such
events if they occur, could adversely affect our business, financial condition, and results of operations.
Our business could be harmed by strikes or work stoppages.
As of April 30, 2019, 24 percent of our full-time employees, located at nine manufacturing locations, are covered by
collective bargaining agreements. These contracts vary in term depending on location, with seven contracts expiring in 2020,
representing 19 percent of our total employees. We cannot assure that we will be able to renew these collective bargaining
agreements on the same or more favorable terms as the current agreements, or at all, without production interruptions caused
by labor stoppages. If a strike or work stoppage were to occur in connection with negotiations of new collective bargaining
agreements or as a result of disputes under collective bargaining agreements with labor unions, our business, financial
condition, and results of operations could be materially adversely affected.
Our ability to competitively serve customers depends on the availability of reliable transportation. Increases in logistics
and other transportation-related costs could adversely impact our results of operations.
Logistics and other transportation-related costs have a significant impact on our earnings and results of operations. We use
multiple forms of transportation, including ships, trucks, and railcars, to bring our products to market. Disruption to the
timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel,
regulations affecting the industry, labor shortages in the transportation industry, service failures by third-party service
providers, accidents, or natural disasters, which may impact the transportation infrastructure or demand for transportation
services, could have an adverse effect on our ability to serve our customers, and could have a material adverse effect on our
business, financial condition, and results of operations.
Our operations are subject to the general risks of the food industry.
The food industry is subject to risks posed by food spoilage and contamination, product tampering, product recall, and
consumer product liability claims. Our operations could be impacted by both genuine and fictitious claims regarding our
products as well as our competitors’ products. In the event of product contamination or tampering, we may need to recall
some of our products. A widespread product recall could result in significant loss due to the cost of conducting a product
recall, including destruction of inventory and the loss of sales resulting from the unavailability of product for a period of
time. We could also suffer losses from a significant product liability judgment against us. A significant product recall or a
product liability judgment, involving either us or our competitors, could also result in a loss of consumer confidence in our
food products or the food category, and an actual or perceived loss of value of our brands, materially impacting consumer
demand.
Changes in our relationships with significant customers, including the loss of our largest customer, could adversely affect
our results of operations.
Sales to Walmart Inc. and subsidiaries amounted to 32 percent of net sales in 2019. These sales are primarily included in the
U.S. retail market segments. Trade receivables at April 30, 2019, included amounts due from Walmart Inc. and subsidiaries of
$137.7 million, or 27 percent of the total trade receivables balance. During 2019, our top 10 customers, collectively,
accounted for approximately 60 percent of consolidated net sales. We expect that a significant portion of our revenues will
continue to be derived from a limited number of customers. Our customers are generally not contractually obligated to
purchase from us. These customers make purchase decisions based on a combination of price, promotional support, product
quality, consumer demand, customer service performance, their desired inventory levels, and other factors. Changes in
customers’ strategies, including a reduction in the number of brands they carry or a shift of shelf space to private label
products, may adversely affect sales. Customers also may respond to price increases by reducing distribution, resulting in
reduced sales of our products. Additionally, our customers may face financial or other difficulties that may impact their
operations and their purchases from us, which could adversely affect our results of operations. A reduction in sales to one or
more major customers could have a material adverse effect on our business, financial condition, and results of operations.
We operate in the competitive food industry and continued demand for our products may be affected by our failure to
effectively compete or by changes in consumer preferences.
We face competition across our product lines from other food companies with the primary methods and factors in
competition being product quality, price, packaging, product innovation, nutritional value, convenience, customer service,
advertising, and promotion. Continued success is dependent on product innovation, the ability to secure and maintain
adequate retail shelf space and to compete in new and growing channels, and effective and sufficient trade merchandising,
advertising, and marketing programs. In particular, technology-based systems, which give consumers the ability to shop
through e-commerce websites and mobile commerce applications, are also significantly altering the retail landscape in many
of our markets. We are committed to expanding our presence in e-commerce, transforming our manufacturing, commercial,
and corporate operations through digital technologies, and enhancing our data analytics capabilities to develop new
commercial insights. However, if we are unable to effectively compete in the expanding e-commerce market, adequately
leverage technology to improve operating efficiencies, or develop the data analytics capabilities needed to generate
actionable commercial insights, our business performance may be impacted, which may negatively impact our financial
condition and results of operations.
Some of our competitors have substantial financial, marketing, and other resources, and competition with them in our various
markets, channels, and product lines could cause us to reduce prices, increase marketing or other expenditures, or lose
category share. Category share and growth could also be adversely impacted if we are not successful in introducing new
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products. Introduction of new products and product extensions requires significant development and marketing investment. If
our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the
return on that investment will be less than anticipated and our strategy to grow sales and profits through investment in
innovation will be less successful. In order to generate future revenues and profits, we must continue to sell products that
appeal to our customers and consumers. Specifically, there are a number of trends in consumer preferences that may impact
us and the food industry as a whole, including convenience, flavor variety, an emphasis on protein and snacking, and the
desire for transparent product labeling and simple and natural ingredients.
anticipated synergies and cost savings, or the expected increases in revenues and operating results, either of which could have
a material adverse effect on our financial results.
In addition, we have made strategic divestitures of brands and businesses, including the sale of our U.S. baking business, and
we may do so in the future. If we are unable to complete divestitures or to successfully transition divested businesses,
including the effective management of the related separation and stranded overhead costs, our business and financial results
could be negatively impacted.
The success of our business depends substantially on consumer perceptions of our brands.
We may not realize the benefits we expect from our cost reduction and other cash management initiatives.
We are the branded market leader in several categories both in the U.S. and Canada. We believe that maintaining and
continually enhancing the value of our brands is critical to the success of our business. Brand value is based in large part on
consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-
quality products. Brand value could diminish significantly as a result of a number of factors, such as if we fail to preserve the
quality of our products, if we are perceived to act in an irresponsible manner, if the Company or our brands otherwise receive
negative publicity, if our brands fail to deliver a consistently positive consumer experience, or if our products become
unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that
information and opinions can be shared. Negative posts or comments about us or our brands or products on social or digital
media could damage our brands and reputation. If we are unable to build and sustain brand equity by offering recognizably
superior products, we may be unable to maintain premium pricing over generic and private label products. If our brand values
are diminished, our revenues and operating results could be materially adversely affected. In addition, anything that harms
the Dunkin’ Donuts or Rachael Ray brands could adversely affect the success of our exclusive licensing agreements with the
owners of these brands.
We could be subject to adverse publicity or claims from consumers.
Certain of our products contain ingredients which are the subject of public scrutiny, including the suggestion that
consumption may have adverse health effects. Although we strive to respond to consumer preferences and social
expectations, we may not be successful in these efforts. An unfavorable report on the effects of ingredients present in our
products, product recalls, or negative publicity or litigation could influence consumer preferences, significantly reduce the
demand for our products, and adversely affect our profitability.
We may also be subject to complaints from or litigation by consumers who allege food and beverage-related illness, or other
quality, health, or operational concerns. Adverse publicity resulting from such allegations could materially adversely affect
us, regardless of whether such allegations are true or whether we are ultimately held liable. A lawsuit or claim could result in
an adverse decision against us, which could have a material adverse effect on our business, financial condition, and results of
operations.
We may not be able to attract, develop, and retain the highly skilled people we need to support our business.
We depend on the skills and continued service of key employees, including our experienced management team. In addition,
our ability to achieve our strategic and operating goals depends on our ability to identify, recruit, hire, train, and retain
qualified individuals. We compete with other companies both within and outside of our industry for talented people, and we
may lose key employees or fail to attract, recruit, train, develop, and retain other talented individuals. Any such loss, failure,
or negative perception with respect to these individuals may adversely affect our business or financial results. In addition,
activities related to identifying, recruiting, hiring, integrating, and training qualified individuals may require significant time
and expense. We may not be able to locate suitable replacements for any key employees who leave or offer employment to
potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Our operations are subject to the general risks associated with acquisitions and divestitures. Specifically, we may not
realize all of the anticipated benefits of the Ainsworth acquisition or those benefits may take longer to realize than
expected.
Our stated 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. We have
historically made strategic acquisitions of brands and businesses, including Ainsworth, and intend to do so in the future in
support of this strategy. If we are unable to complete acquisitions or to successfully integrate and develop acquired
businesses, including the effective management of integration and related restructuring costs, we could fail to achieve the
We continuously pursue initiatives to reduce costs, increase effectiveness, and optimize cash flow. We may not realize all or
part of the anticipated cost savings or other benefits from such initiatives. Other events and circumstances, such as financial
or strategic difficulties, delays, or unexpected costs, may also adversely impact our ability to realize all or part of the
anticipated cost savings or other benefits, or cause us not to realize such cost savings or other benefits on the expected
timetable. If we are unable to realize the anticipated benefits, our ability to fund other initiatives may be adversely affected.
Finally, the complexity of the implementation will require a substantial amount of management and operational resources.
Our management team must successfully execute the administrative and operational changes necessary to achieve the
anticipated benefits of the initiatives. These and related demands on our resources may divert the organization’s attention
from other business issues, have adverse effects on existing business relationships with suppliers and customers, and impact
employee morale. Any failure to implement these initiatives in accordance with our plans could adversely affect our business
and financial results.
Weak financial performance, downgrades in our credit ratings, or disruptions in the financial markets may adversely
affect our ability to access capital in the future.
We may need new or additional financing in the future to conduct our operations, expand our business, or refinance existing
indebtedness, which would be dependent upon our financial performance. Any downgrade in our credit ratings, particularly
our short-term rating, would likely impact the amount of commercial paper we could issue and increase our commercial
paper borrowing costs. The liquidity of the overall capital markets and the state of the economy, including the food and
beverage industry, may make credit and capital markets more difficult for us to access, even though we have an established
revolving credit facility. From time to time, we have relied, and also may rely in the future, on access to financial markets as
a source of liquidity for working capital requirements, acquisitions, and general corporate purposes. In particular, our access
to funds under our revolving credit facility is dependent on the ability of the financial institutions that are parties to that
facility to meet their funding commitments. The obligations of the financial institutions under our revolving credit facility are
several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.
In addition, long-term volatility and disruptions in the capital and credit markets as a result of uncertainty, changing or
increased regulation of financial institutions, reduced alternatives, or the failure of significant financial institutions could
adversely affect our access to the liquidity needed for our businesses in the longer term. Such disruptions could require us to
take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our
business needs can be arranged. Disruptions in the capital and credit markets could also result in higher interest rates on
publicly issued debt securities and increased costs under credit facilities. Continuation of these disruptions would increase
our interest expense and capital costs and could adversely affect our results of operations and financial position.
Our substantial debt obligations could restrict our operations and financial condition. Additionally, our ability to generate
cash to make payments on our indebtedness depends on many factors beyond our control.
As of April 30, 2019, we had approximately $5.9 billion of short-term borrowings and long-term debt, partially as a result of
new borrowings this year to finance the Ainsworth acquisition. We may also incur additional indebtedness in the future. Our
debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on
indebtedness rather than for other corporate purposes, including funding future expansion of our business and ongoing capital
expenditures, which could impede our growth. Our substantial indebtedness could have other adverse consequences,
including:
• making it more difficult for us to satisfy our financial obligations;
•
increasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a
disadvantage compared to our competitors that are less leveraged;
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
•
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•
•
limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general
corporate or other purposes; and
exposing us to greater interest rate risk, including the risk to variable borrowings of a rate increase and the risk to
fixed borrowings of a rate decrease.
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to
generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors, many of which
are beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not
be available to us in an amount sufficient to enable us to pay our indebtedness when scheduled payments are due or to fund
other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before
maturity. Any refinancing of our debt could be at higher interest rates and may require make-whole payments and compliance
with more onerous covenants, which could further restrict our business operations. Our ability to refinance our indebtedness
or obtain additional financing would depend on, among other things, our financial condition at the time, restriction in the
agreements governing our indebtedness, and the condition of the financial markets and the industry in which we operate. As a
result, we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. Without this
financing, we may have to seek additional equity or debt financing or restructure our debt, which could harm our long-term
business prospects. Our failure to comply with the terms of any existing or future indebtedness could result in an event of
default which, if not cured or waived, could result in the acceleration of the payment of all of our debt.
A material impairment in the carrying value of acquired goodwill or other intangible assets could negatively affect our
consolidated operating results and net worth.
A significant portion of our assets is goodwill and other intangible assets, the majority of which are not amortized but are
reviewed for impairment at least annually on February 1, and more often if indicators of impairment exist. At
April 30, 2019, the carrying value of goodwill and other intangible assets totaled $13.0 billion, compared to total assets of
$16.7 billion and total shareholders’ equity of $8.0 billion. If the carrying value of these assets exceeds the current estimated
fair value, the asset would be considered impaired, and this would result in a noncash charge to earnings, which 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.
As of April 30, 2019, the carrying values of the goodwill and indefinite-lived intangible assets within the U.S. Retail Pet
Foods segment were $2.4 billion and $1.5 billion, respectively. These intangible assets are susceptible to future impairment
charges due to narrow differences between fair value and carrying value as a result of recent impairment charges and the
acquisition of Ainsworth in May 2018. To date, we have recognized $412.6 million of impairment charges related to the
goodwill and indefinite-lived intangible assets acquired as part of the Big Heart acquisition in 2015, primarily as a result of
reductions in our long-term net sales and profitability projections. We do not believe that our Pet Foods reporting unit or any
of the indefinite-lived trademarks within the U.S. Retail Pet Foods segment are more likely than not impaired as of
April 30, 2019. However, further changes to the assumptions regarding the future performance of the U.S. Retail Pet Foods
segment or its brands, an adverse change to macro-economic conditions, or a change to other assumptions could result in
additional impairment losses in the future, which could be significant. As of April 30, 2019, the estimated fair value was
substantially in excess of the carrying value for the majority of the remaining reporting units and material indefinite-lived
intangible assets, and in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent, with
the exception of the Natural Foods reporting unit, which has no remaining goodwill as a result of the impairment charge
recorded during the fourth quarter of 2019. For further information, refer to Note 7: Goodwill and Other Intangible Assets.
Changes in tax, environmental, or other regulations and laws, or their application, or failure to comply with existing
licensing, trade, and other regulations and laws could have a material adverse effect on our financial condition.
Our operations are subject to various regulations and laws administered by federal, state, and local government agencies in
the U.S. as well as to regulations and laws administered by government agencies in Canada and other countries in which we
have operations and our products are sold. In particular, the manufacturing, marketing, packaging, labeling, distribution, and
sale of food products are each subject to governmental regulation that is increasingly extensive, encompassing such matters
as ingredients (including whether a product contains genetically modified ingredients), packaging, advertising, relations with
distributors and retailers, health, safety, data privacy, and the environment. Additionally, we are routinely subject to new or
modified tax and securities regulations, other laws and regulations, and accounting and reporting standards.
In the U.S., we are required to comply with federal laws, such as the Food, Drug and Cosmetic Act, the Food Safety
Modernization Act, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Tariff Act, laws governing equal employment opportunity, and various other federal
statutes and regulations. We are also subject to various state and local statutes and regulations. For instance, the California
Safe Drinking Water and Toxic Enforcement Act of 1986 (better known as “Proposition 65”) requires that a specific warning
appear on any product sold in the State of California that contains a substance listed by that state as having been found to
cause cancer or birth defects. This law exposes all food and beverage producers to the possibility of having to provide
warnings on their products, as well as civil penalties. The detection of even a trace amount of a listed substance can subject
an affected product to the requirement of a warning label. Products containing listed substances that occur naturally or that
are contributed to such products solely by a municipal water supply are generally exempt from the warning requirement. In
particular, we are currently a defendant in Council for Education and Research on Toxics (“Plaintiff” or “CERT”) v. Brad
Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants who manufacture, package, distribute,
or sell packaged coffee, failed to warn persons in California that our coffee products expose persons to the chemical
acrylamide, which is not added to coffee but is present in all coffee in small amounts (measured in parts per billion) as a
byproduct of the coffee bean roasting process, in violation of Proposition 65. If we are required to pay significant statutory
penalties or to add warning labels to any of our products or place warnings in certain locations where our products are sold as
a result of Proposition 65, our business and financial results could be adversely impacted, and sales of those products could
suffer not only in those locations but elsewhere.
We regularly move data across national and state borders to conduct our operations and, consequently, are subject to a variety
of laws and regulations in the U.S. and other jurisdictions regarding privacy, data protection, and data security, including
those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. There is significant
uncertainty with respect to compliance with such privacy and data protection laws and regulations, because they are
continuously evolving and developing and may be interpreted and applied differently from country to country and state to
state and may create inconsistent or conflicting requirements.
Complying with new regulations and laws, or changes to existing regulations and laws, or their application could increase our
costs or adversely affect our sales of certain products. In addition, our failure or inability to comply with applicable
regulations and laws could subject us to civil remedies, including fines, injunctions, recalls or seizures, and potential criminal
sanctions, which could have a material adverse effect on our business and financial condition.
Our operations in certain developing markets expose us to regulatory risks.
In many countries outside of the U.S., particularly in those with developing economies, it may be common for others to
engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices
Act or similar local anti-bribery or anti-corruption laws. These laws generally prohibit companies and their employees,
contractors, or agents from making improper payments to government officials for the purpose of obtaining or retaining
business. Failure to comply with these laws could subject us to civil and criminal penalties that could have a material adverse
effect on our financial condition and results of operations.
Changes in climate or legal, regulatory, or market measures to address climate change may negatively affect our business
and operations.
There is significant political and scientific concern that emissions of carbon dioxide and other greenhouse gases may alter the
composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate.
The emission of such greenhouse gases may have an adverse impact on global temperatures, weather patterns, and the
frequency and severity of extreme weather and natural disasters. In the event that climate change has a negative effect on
agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that
are necessary for our products, such as green coffee, peanuts, animal protein meals, oils and fats, sweeteners, grains, and
fruit. We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which
could impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions
may disrupt the productivity of our facilities or the operation of our supply chain.
Increasing concern over climate change also may result in more regulatory requirements to reduce or mitigate the effects of
greenhouse gases. In the event that such regulations are enacted and are more rigorous than existing regulations, we may
experience significant increases in costs of operation and delivery. In particular, increased regulation of utility providers, fuel
emissions, or suppliers could substantially increase our operating, distribution, or supply chain costs. We could also face
13
14
increased costs related to defending and resolving legal claims and other litigation related to climate change. As a result,
climate change could negatively affect our results of operations, cash flows, or financial position.
Item 2.
Properties.
If our information technology systems fail to perform adequately or we are unable to protect such information technology
systems against data corruption, cyber-based attacks, or network security breaches, our operations could be disrupted, and
we may suffer financial damage or loss because of lost or misappropriated information.
We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic
information. In particular, we depend on our information technology infrastructure to effectively manage our business data,
supply chain, logistics, finance, and other business processes and for digital marketing activities and electronic
communications between Company personnel and our customers and suppliers. If we do not allocate and effectively manage
the resources necessary to build, sustain, and protect an appropriate technology infrastructure, or we do not effectively
implement system upgrades, our business or financial results could be negatively impacted. We are regularly the target of
attempted cyber and other security threats. Therefore, we continuously monitor and update our information technology
networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer
viruses, and other events that could have a security impact. We invest in industry standard security technology to protect our
data and business processes against the risk of data security breaches and cyber-based attacks. We believe our security
technology tools and processes provide adequate measures of protection against security breaches and in reducing
cybersecurity risks. Nevertheless, despite continued vigilance in these areas, security breaches or system failures of our
infrastructure, whether due to attacks by hackers, employee error, or other causes, can create system disruptions, shutdowns,
transaction errors, or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or
failures, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated
information. In addition, the cost to remediate any damages to our information technology systems suffered as a result of a
cyber-based attack could be significant.
Further, we have outsourced several information technology support services and administrative functions, including benefit
plan administration and other functions, to third-party service providers, and may outsource other functions in the future to
achieve cost savings and efficiencies. In addition, certain of our processes rely on third-party cloud computing services. If the
service providers to which we outsource these functions do not perform effectively, we may not be able to achieve the
expected benefits and may have to incur additional costs to correct errors made by such service providers. Depending on the
function involved, such errors may also lead to business disruption, processing inefficiencies, inaccurate financial reporting,
the loss of or damage to intellectual property through security breach, the loss of sensitive data through security breach, or
otherwise.
Item 1B.
Unresolved Staff Comments.
None.
The table below lists all of our manufacturing and processing facilities at April 30, 2019. All of our properties are maintained
and updated on a regular basis, and we continue to make investments for expansion and safety and technological
improvements. We believe that the capacity at our existing facilities will be sufficient to sustain current operations and the
anticipated near-term growth of our businesses.
We own all of the properties listed below, except as noted. Additionally, our principal distribution centers in the U.S. include
three that we own and seven that we lease. We also lease our principal distribution center in Canada. Our distribution
facilities are in good condition, and we believe that they have sufficient capacity to meet our distribution needs in the near
future. We lease eight sales and administrative offices in the U.S. and one in Canada. Our corporate headquarters is located in
Orrville, Ohio, and our Canadian headquarters is located in Markham, Ontario.
Locations
Products Produced/Processed/Stored
Primary Reportable Segment
Bloomsburg, Pennsylvania
Wet dog and cat food and dry dog and cat food
U.S. Retail Pet Foods
Buffalo, New York
Chico, California
Cincinnati, Ohio
Decatur, Alabama
Frontenac, Kansas
Dog snacks
Fruit and vegetable juices and beverages and
grain products
Shortening and oils
Dry dog and cat food
Dry dog and cat food
Grandview, Washington
Fruit
U.S. Retail Pet Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
U.S. Retail Pet Foods
U.S. Retail Consumer Foods
Havre de Grace, Maryland
Fruit and vegetable juices and beverages
U.S. Retail Consumer Foods
Lawrence, Kansas
Lexington, Kentucky
Longmont, Colorado (A)
Meadville, Pennsylvania
Dry dog food
Peanut butter
Frozen sandwiches
Dry dog and cat food
Memphis, Tennessee
Peanut butter and fruit spreads
New Bethlehem, Pennsylvania
Peanut butter and combination peanut butter and
jelly products
U.S. Retail Pet Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
New Orleans, Louisiana (four
facilities) (B)
Orrville, Ohio
Oxnard, California
Ripon, Wisconsin
Scottsville, Kentucky
Seattle, Washington (B)
Sherbrooke, Quebec
Suffolk, Virginia
Topeka, Kansas
Coffee
U.S. Retail Coffee
Fruit spreads, toppings, and syrups
Fruit
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
Fruit spreads, toppings, syrups, and condiments
U.S. Retail Consumer Foods
Frozen sandwiches
Nut mix products
Canned milk
Coffee
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
International and Away From Home
International and Away From Home
Dry dog and cat food and dog and cat snacks
U.S. Retail Pet Foods
(A) Our new facility in Longmont will help meet growing demand for Smucker’s Uncrustables frozen sandwiches and will complement
our existing facility in Scottsville. Production is expected to begin at the Longmont facility during the second half of calendar year
2019.
(B) We lease our coffee silo facility in New Orleans and our facilities in Seattle.
Item 3.
Legal Proceedings.
The information required for this Item is incorporated herein by reference to Note 15: Contingencies.
Item 4.
Mine Safety Disclosures.
Not applicable.
15
16
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
PART II
Item 6.
Selected Financial Data.
Our common shares are listed on the New York Stock Exchange – ticker symbol SJM. There were approximately 311,613
shareholders of record as of June 10, 2019, of which approximately 37,413 were registered holders of common shares.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers: The following table presents the total number of
shares of common stock purchased during the fourth quarter of 2019, the average price paid per share, the number of shares
that were purchased as part of a publicly announced repurchase program, if any, and the approximate dollar value of the
maximum number of shares that may yet be purchased under the share repurchase program:
Period
(a)
(b)
(c)
(d)
February 1, 2019 - February 28, 2019
March 1, 2019 - March 31, 2019
April 1, 2019 - April 30, 2019
Total
Total number
of shares
purchased
899
518
1,162
2,579
Average
price paid
per share
$ 104.17
103.11
120.90
$ 111.50
Total number of shares
purchased as part
of publicly announced
plans or programs
Maximum number (or approximate
dollar value) of shares that may
yet be purchased under the
plans or programs
—
—
—
—
3,586,598
3,586,598
3,586,598
3,586,598
(a) Shares in this column include shares repurchased from stock plan recipients in lieu of cash payments.
(d) As of April 30, 2019, there were 3,586,598 common shares remaining available for future repurchase pursuant to our Board of
Directors’ authorizations.
Comparison of Cumulative Total Return: The following graph compares the cumulative total shareholder return for the
five years ended April 30, 2019, for our common shares, the Standard & Poor’s (“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 $100.00 invested
in our common shares and the referenced index funds on April 30, 2014.
The J. M. Smucker Company
S&P Packaged Foods & Meats
S&P 500
April 30,
2014
$ 100.00
100.00
100.00
2015
$ 122.83
114.98
112.98
2016
$ 137.63
133.99
114.34
2017
$ 140.28
141.72
134.83
2018
$ 129.67
121.42
152.72
2019
$ 143.66
134.16
173.32
17
The following table presents selected financial data for each of the five years in the period ended April 30, 2019. The selected
financial data should be read in conjunction with the “Results of Operations” and “Liquidity and Capital Resources” sections
within Management’s Discussion and Analysis of Financial Condition and Results of Operations 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
Total shareholders’ equity
Liquidity:
Net cash provided by operating activities
Additions to property, plant, and equipment
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:
Year Ended April 30,
2019
2018
2017
2016
2015
$ 7,838.0
$ 2,915.7
$ 7,357.1
$ 2,836.1
$ 7,392.3
$ 2,835.3
$ 7,811.2
$ 2,967.8
$ 5,692.7
$ 1,968.7
37.2%
928.6
11.8%
514.4
$
$
38.5%
38.4%
38.0%
$ 1,044.0
$ 1,042.6
$ 1,146.3
14.2%
$ 1,338.6
$
14.1%
592.3
$
14.7%
688.7
34.6%
785.3
13.8%
344.9
$
$
$
101.3
16,711.3
5,910.8
7,970.5
$ 1,141.2
359.8
781.4
377.9
5.4
1,560.9
113.7
113.7
3.40
4.52
4.52
$
$
$
192.6
15,301.2
4,832.0
7,891.1
$ 1,218.0
321.9
896.1
350.3
7.0
1,625.1
113.6
113.6
3.12
11.79
11.78
$
$
$
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
$ 2,969.9
$ 2,802.7
$ 2,868.2
$ 2,968.0
$ 1,999.4
37.9%
38.1%
38.8%
38.0%
$ 1,492.3
$ 1,439.7
$ 1,492.9
$ 1,490.8
$
19.0%
19.6%
20.2%
19.1%
35.1%
983.5
17.3%
Adjusted income
Adjusted earnings per share – assuming dilution
$
$
942.7
8.29
$
$
904.6
7.96
$
$
895.9
7.72
$
$
931.3
7.79
475.6
4.59
$
(A) We use non-GAAP financial measures to evaluate our performance. Refer to “Non-GAAP Financial Measures” within Management’s
Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation to the comparable GAAP financial
measure.
18
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollars and shares in millions, unless otherwise noted, except per share data)
Company Background
Inspired by more than 120 years of business success and five generations of family leadership, The J. M. Smucker Company
makes food that people and pets love. The Company’s portfolio of 40+ brands, which are found in 90 percent of U.S. homes
and countless restaurants, include iconic products consumers have always loved such as Folgers, Jif, and Milk-Bone plus new
favorites like Café Bustelo, Smucker’s Uncrustables, and Rachael Ray Nutrish. Over the past two decades, the Company has
grown rapidly by thoughtfully acquiring leading and emerging brands, while ensuring the business has a positive impact on
its 7,000+ employees, the communities it is a part of, and the planet.
We have four reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International
and Away From Home. The U.S. retail market segments in total comprised 86 percent of net sales in 2019 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,
club stores, pet specialty stores, discount and dollar stores, food wholesalers, online retailers, drug stores, natural foods stores
and distributors, military commissaries, and mass merchandisers. The products included in the International and Away From
Home segment 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 122 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 2 to 3 percent and operating income excluding non-
GAAP adjustments (“adjusted operating income”) by 5 percent annually on average. Our long-term growth objective related
to income per diluted share excluding non-GAAP adjustments (“adjusted earnings per share”) is to achieve an average
increase of 8 percent annually. 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. Our non-GAAP adjustments include amortization
expense and impairment charges related to intangible assets, integration and restructuring costs, unallocated gains and losses
on commodity and foreign currency exchange derivatives, and, beginning in 2018, certain one-time discrete tax adjustments.
Refer to “Non-GAAP Financial Measures” in this discussion and analysis for further information.
Net sales has increased at a compound annual growth rate of 7 percent over the past five years, driven by the acquisitions of
Big Heart in 2015 and Ainsworth in the current year, while adjusted operating income and adjusted earnings per share have
increased at a rate of 7 percent and 6 percent, respectively, over the same period. Net cash provided by operating activities
has increased at a compound annual growth rate of 6 percent. 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. Our strategy also includes a significant focus on debt repayment.
On May 14, 2018, we acquired the stock of Ainsworth in an all-cash transaction, which was funded by debt and valued at
$1.9 billion, inclusive of a working capital adjustment. Ainsworth is a leading producer, distributor, and marketer of premium
pet food and pet snacks, predominantly within the U.S. The majority of Ainsworth’s sales are generated by the Rachael Ray
Nutrish brand, which is driving significant growth in the premium pet food category. Annual cost synergies of approximately
$55.0 are expected to be fully realized by the end of 2021, most of which will be achieved by the end of 2020. We realized
synergies of $23.5 in 2019. The transaction was accounted for under the acquisition method of accounting and, accordingly,
the results of Ainsworth’s operations, including $747.0 and $40.8 in net sales and operating income, respectively, are
included in our consolidated financial statements in 2019.
On August 31, 2018, we sold our U.S. baking business to Brynwood Partners VII L.P. and Brynwood Partners VIII L.P.,
subsidiaries of Brynwood Partners, an unrelated party. The transaction included products that were primarily sold in U.S.
retail channels under the Pillsbury, Martha White, Hungry Jack, White Lily, and Jim Dandy brands, along with all relevant
trademarks and licensing agreements, and our manufacturing facility in Toledo, Ohio. This business generated net sales of
approximately $370.0 in 2018, primarily in the U.S. Retail Consumer Foods segment. The transaction did not include our
baking business in Canada. We received proceeds from the divestiture of $369.5, which were net of cash transactions costs
and a working capital adjustment. Upon completion of the transaction, we recognized a pre-tax gain of $27.7 during 2019,
which is included in other operating expense (income) – net within the Statement of Consolidated Income.
Results of Operations
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years
ended April 30, 2019 and 2018. For the comparisons of the years ended April 30, 2018 and 2017, see the Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2018 Annual Report on
Form 10-K.
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)
Income
Earnings per share – assuming dilution
Year Ended April 30,
2019
$ 7,838.0
$ 2,915.7
$
37.2%
928.6
11.8%
% Increase
(Decrease)
7%
3
2018
$ 7,357.1
$ 2,836.1
38.5%
$ 1,044.0
(11)
14.2%
514.4
$
$
4.52
$ 2,969.9
$ 1,338.6
$
11.78
$ 2,802.7
37.9%
38.1%
$ 1,492.3
$ 1,439.7
19.0%
19.6%
$
$
942.7
8.29
$
$
904.6
7.96
(62)
(62)
6
4
4
4
(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.
Net Sales
Net sales
Ainsworth acquisition
Baking divestiture
Foreign currency exchange
Net sales excluding acquisition, divestiture, and foreign currency exchange (A)
Amounts may not add due to rounding.
Year Ended April 30,
2019
$ 7,838.0
(747.0)
—
13.7
$ 7,104.7
2018
$ 7,357.1
—
(254.0)
—
$ 7,103.1
Increase
(Decrease)
$ 480.9
(747.0)
254.0
13.7
1.6
$
%
7%
(10)
3
—
—%
(A) Net sales excluding acquisition, 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 in 2019 increased $480.9, or 7 percent, reflecting a $747.0 contribution from the Ainsworth acquisition, partially
offset by the impact of $254.0 of noncomparable net sales in the prior year related to the divestiture of the U.S. baking
business during the second quarter of 2019. Net sales excluding acquisition, divestiture, and foreign currency exchange was
comparable to the prior year, as the impact of lower net price realization, which reduced net sales by 1 percentage point, was
offset by the impact of favorable volume/mix, which contributed 1 percentage point to net sales. The lower net price
19
20
realization was mostly related to coffee, peanut butter, and oils, and the favorable volume/mix was primarily driven by
growth in coffee, Smucker’s Uncrustables, and Jif Power-UpsTM, partially offset by a decline in pet food and pet snacks.
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
Goodwill impairment charges
Other intangible assets impairment charges
Other special project costs
Other operating expense (income) – net
Operating income
Amounts may not add due to rounding.
Year Ended April 30,
2018
2019
37.2% 38.5%
3.2%
2.6
3.3
3.2
6.2
3.9%
3.0
3.2
3.3
5.9
19.2% 18.5%
3.1
1.2
1.4
0.8
(0.4)
11.8% 14.2%
2.8
2.0
0.4
0.6
—
Gross profit increased $79.6, or 3 percent, in 2019, primarily driven by the addition of Ainsworth, partially offset by the
noncomparable impact related to the U.S. baking business divestiture. An unfavorable net impact of lower prices and higher
costs was mostly driven by an unfavorable change in the impact of derivative gains and losses, which was partially offset by
the impact of favorable volume/mix.
Operating income decreased $115.4, or 11 percent, as higher gross profit and a $27.7 pre-tax gain related to the sale of the
U.S. baking business were more than offset by a $145.7 increase in selling, distribution, and administrative expenses and a
$33.5 increase in amortization expense, both of which were primarily due to the Ainsworth acquisition. In addition,
intangible asset impairment charges increased by $28.2 as a result of charges in the U.S. Retail Pet Foods and U.S. Retail
Consumer Foods segments in 2019, and special project costs increased by $14.8, driven by an increase in restructuring costs.
For further information on the impairment charges, refer to “Critical Accounting Estimates and Policies” in this discussion
and analysis.
Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) increased $167.2, or 6 percent, in 2019, with the
primary difference from GAAP results being the exclusion of a $91.5 unfavorable change in the impact of unallocated
derivative gains and losses as compared to the prior year. Adjusted operating income increased $52.6, or 4 percent, further
reflecting the exclusion of amortization expense, the impairment charges, and special project costs.
Interest Expense
Net interest expense increased $33.8, or 19 percent, in 2019, primarily due to the impact of the incremental debt issued to
finance the Ainsworth acquisition. For additional information, see “Capital Resources” in this discussion and analysis.
Income Taxes
The effective tax rate of 26.7 percent for 2019 varied from the U.S. statutory tax rate of 21.0 percent primarily due to the
impact of state income taxes, additional income tax expense associated with the sale of the U.S. baking business, and a
goodwill impairment charge within the U.S. Retail Consumer Foods segment, partially offset by a noncash deferred tax
benefit related to the integration of Ainsworth.
Income tax expense of $187.2 for 2019 reflects an immaterial adjustment related to the completion of the accounting for the
income tax effects of the U.S. Tax Cuts and Jobs Act (the “Act”) during the third quarter. Despite the completion of the
accounting, the amounts recorded may change as a result of future guidance and interpretation from the Internal Revenue
Service and various other taxing jurisdictions, all of which are continuing to analyze the complexities and interdependencies
of the provisions of the Act. Any future legislative and interpretive actions could result in additional income tax impacts,
which could be material in the period any such changes are enacted. We anticipate a full-year effective tax rate for 2020 in the
range of 24.5 to 25.0 percent.
The income tax benefit of $477.6 for 2018 reflected the recognition of a net benefit of $765.8 related to our discrete
adjustments resulting directly from the Act, partially offset by additional income tax expense related to a Pet Foods reporting
unit goodwill impairment charge. The net benefit of $765.8 included the revaluation of net deferred tax liabilities at the
reduced federal income tax rate, offset in part by the estimated impact of a one-time repatriation tax on earnings of certain
foreign subsidiaries that were previously tax deferred. For further information, refer to Note 13: Income Taxes.
Integration Activities
We expect to incur approximately $50.0 in integration costs related to the Ainsworth acquisition, the majority of which are
expected to be cash charges. Of the total anticipated integration costs, we expect approximately half to be employee-related.
During 2019, we incurred integration charges of $32.1. All remaining integration costs are expected to be incurred by the end
of 2020. For further information, refer to Note 3: Integration and Restructuring Costs.
Restructuring Activities
An organization optimization program was approved by the Board of Directors (the “Board”) during the fourth quarter of
2016. Under this program, we identified opportunities to reduce costs and optimize the organization. Related projects
included an organizational redesign and the optimization of our manufacturing footprint. The program was expanded at the
end of 2018 to include the restructuring of our geographic footprint, which includes the centralization of our pet food and pet
snacks business, as well as certain international non-manufacturing functions, to our corporate headquarters in Orrville, Ohio,
furthering collaboration and enhanced agility, while improving cost efficiency.
The organization optimization program was completed during 2019, and as a result, we closed our international offices in
China and Mexico, as well as the San Francisco and Burbank, California, offices. We incurred total cumulative restructuring
costs of $74.6, of which $32.0 was incurred during 2019. The costs incurred were primarily employee-related, as the program
resulted in total headcount reductions of approximately 450 full-time positions. For further information, refer to Note 3:
Integration and Restructuring Costs.
Commodities Overview
The raw materials we use are primarily commodities, agricultural-based products, and packaging materials. The most
significant of these materials, based on 2019 annual spend, are green coffee, peanuts, animal protein meals, oils and fats, and
plastic containers. Green coffee and certain 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.
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 source peanuts, animal protein meals, and oils and fats mainly from North America. 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 oils we purchase are mainly soybean and canola. The price of peanuts, animal protein meals,
and 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 price of oils has been impacted by demand from the biofuels
industry.
We frequently enter into long-term contracts to purchase plastic containers, which are 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.
Excluding the impact of derivative gains and losses, our overall commodity costs in 2019 were lower than in 2018, primarily
due to lower costs for green coffee, slightly offset by higher costs for peanuts.
Segment Results
We have four reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International
and Away From Home. The U.S. Retail Coffee segment primarily includes the domestic sales of Folgers, Dunkin’ Donuts,
21
22
and Café Bustelo branded coffee; the U.S. Retail Consumer Foods segment primarily includes domestic sales of Smucker’s,
Jif, and Crisco branded products; and the U.S. Retail Pet Foods segment primarily includes domestic sales of Rachael Ray
Nutrish, Meow Mix, Milk-Bone, Natural Balance, Kibbles ’n Bits, 9Lives, Nature’s Recipe, and Pup-Peroni branded products.
The International and Away From Home segment comprises 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, 2018, the convenience store channel, which was previously included in the U.S. retail segments, is now
included in the International and Away From Home segment. Segment performance for 2018 has been reclassified for this
realignment.
Net sales:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
Segment profit:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
Segment profit margin:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
Year Ended April 30,
2019
2018
% Increase
(Decrease)
$ 2,122.3
1,761.5
2,879.5
1,074.7
$ 2,086.8
1,985.6
2,165.3
1,119.4
$
676.3
406.1
503.4
198.5
$
612.4
475.3
439.4
200.1
2%
(11)
33
(4)
10%
(15)
15
(1)
31.9%
23.1
17.5
18.5
29.3%
23.9
20.3
17.9
U.S. Retail Coffee
The U.S. Retail Coffee segment net sales increased $35.5 in 2019. Favorable volume/mix contributed 4 percentage points,
driven by the Dunkin’ Donuts, 1850, and Café Bustelo brands, partially offset by declines in Folgers roast and ground coffee.
The favorable volume/mix was partially offset by lower net price realization, which reduced net sales by 2 percentage points,
primarily driven by the Folgers brand. Segment profit increased $63.9, primarily due to lower input costs and favorable
volume/mix, partially offset by lower net price realization and an increase in marketing expense, the majority of which
related to the 1850 launch.
U.S. Retail Consumer Foods
The U.S. Retail Consumer Foods segment net sales decreased $224.1 in 2019, reflecting the impact of $247.3 of
noncomparable net sales in the prior year related to the divested U.S. baking business. Excluding the noncomparable impact
of the divested business, net sales increased 1 percent, driven by favorable volume/mix, which contributed 4 percentage
points, primarily related to Smucker’s Uncrustables, Jif Power-Ups, and Crisco oils. The favorable volume/mix was partially
offset by lower net price realization, which reduced net sales by 2 percentage points, driven by the Jif brand and a price
decline on the Crisco brand at the beginning of the fiscal year. Segment profit decreased $69.2, and decreased $55.2
excluding the noncomparable segment profit in the prior year and the gain from the divestiture. The segment profit decline
primarily resulted from lower net price realization and higher input costs, mostly related to peanut butter, and an increase in
marketing expense driven by Jif Power-Ups. These factors were partially offset by the impact of favorable volume/mix. In
response to an anticipated decline in our peanut costs, we implemented a list price decrease on select Jif products sold in the
U.S. effective March 2019. Although not reflected in segment profit, a goodwill impairment charge of $97.9 related to the
Natural Foods reporting unit within the U.S. Retail Consumer Foods segment was recognized in the fourth quarter of 2019.
For additional information, see Note 7: Goodwill and Other Intangible Assets.
U.S. Retail Pet Foods
The U.S. Retail Pet Foods segment net sales increased $714.2 in 2019, reflecting the $747.0 contribution from Ainsworth.
Excluding Ainsworth, net sales declined $32.8, primarily due to unfavorable volume/mix, which reduced net sales by
2 percentage points. The impact of the discontinuation of certain private label and Gravy Train® wet dog food products and
declines for the Natural Balance brand were partially offset by gains for the Meow Mix and Nature’s Recipe brands. Segment
profit increased $64.0, driven by the addition of Ainsworth. Excluding Ainsworth, segment profit decreased $29.1, as the
impact of higher input costs was only partially offset by a reduction in marketing expense. In response to a sustained increase
in input costs, we implemented a list price increase on select pet food products sold in the U.S. effective February 2019.
Although not reflected in segment profit, an impairment charge of $107.2 associated with certain indefinite-lived trademarks
within the U.S. Retail Pet Foods segment was recognized in the third quarter of 2019, while the prior year included
impairment charges of $176.9 related to the goodwill of the Pet Foods reporting unit and certain indefinite-lived trademarks
within the segment. For additional information, see Note 7: Goodwill and Other Intangible Assets.
International and Away From Home
The International and Away From Home segment net sales decreased $44.7 in 2019, due to lower net price realization, $13.7
of unfavorable foreign currency exchange, and unfavorable volume/mix, each of which reduced net sales by 1 percentage
point. The net sales decline also reflects the impact of $6.7 of noncomparable net sales in the prior year related to the divested
U.S. baking business. Segment profit decreased $1.6, reflecting lower net price realization, the unfavorable impact of foreign
currency exchange, and unfavorable volume/mix, which were offset by the impacts of lower input costs and lower marketing
expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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 decreased to $101.3 at April 30, 2019, compared to
$192.6 at April 30, 2018.
Within the U.S. Retail Coffee and U.S. Retail Consumer Foods segments, we have historically experienced 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, cash provided by operations in the second half of the
fiscal year has significantly exceeded 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 has not experienced significant seasonality.
Due to the divestiture of the seasonal U.S. baking business during the second quarter of 2019, we expect that the impact of
seasonality on our future working capital requirements will be reduced. Further, we anticipate that the growth of the U.S.
Retail Pet Foods segment as a result of the Ainsworth acquisition during the first quarter of 2019 will cause a further
reduction in the seasonality of our overall working capital requirements.
The following table presents selected cash flow information.
Net cash provided by (used for) operating activities
Net cash provided by (used for) investing activities
Net cash provided by (used for) financing activities
Net cash provided by (used for) operating activities
Additions to property, plant, and equipment
Free cash flow (A)
Year Ended April 30,
2018
2019
$ 1,218.0
$ 1,141.2
(277.6)
(1,924.2)
(922.0)
699.0
$ 1,141.2
(359.8)
781.4
$
$ 1,218.0
(321.9)
896.1
$
(A) Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment,
dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.
The $76.8 decrease in cash provided by operating activities in 2019 was mainly due to lower net income adjusted for noncash
items. The reduction in working capital during the current year was comparable to the prior year, as an unfavorable impact
related to trade receivables was mostly offset by a favorable impact related to income taxes. Trade receivables increased
during the current year as a result of higher sales, while trade receivables decreased during the prior year. The favorable
impact related to income taxes was due to lower federal payments and a $30.0 income tax refund during 2019. The lower
federal payments in the current year were driven by the reduced statutory tax rate that resulted from U.S. tax reform.
23
24
Cash used for investing activities in 2019 consisted of $1.9 billion related to the Ainsworth acquisition, $359.8 in capital
expenditures, and a $29.8 increase in our derivative cash margin account balances, partially offset by net proceeds from the
divestiture of the U.S. baking business of $369.5. Cash used for investing activities in 2018 consisted primarily of $321.9 in
capital expenditures, partially offset by a $30.9 reduction in our derivative cash margin account balances.
Cash provided by financing activities in 2019 consisted primarily of $1.5 billion in long-term debt proceeds and a $282.0 net
increase in short-term borrowings, partially offset by long-term debt repayments of $700.0 and dividend payments of $377.9.
For additional information on our new borrowings, see “Capital Resources” in this discussion and analysis. Cash used for
financing activities in 2018 consisted primarily of $1.1 billion in long-term debt repayments, dividend payments of $350.3,
and a $310.0 net decrease in short-term borrowings during the year, which were partially offset by $799.6 in long-term debt
proceeds.
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,
including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business
previously owned by, but divested prior to our acquisition of, Big Heart, the significant majority of which we settled during
2019 and the remainder of which we anticipate resolving in the near future. While we cannot predict with certainty the
ultimate results of these proceedings or potential settlements associated with these matters, we have accrued losses for certain
contingent liabilities that we have determined are probable and reasonably estimable at April 30, 2019. Based on the
information known to date, with the exception of the matter discussed below, we do not believe the final outcome of these
proceedings could have a material adverse effect on our financial position, results of operations, or cash flows.
In addition to the legal proceedings discussed above, we are currently a defendant in CERT v. Brad Barry LLC, et al., which
alleges that we, in addition to nearly eighty other defendants who manufacture, package, distribute, or sell coffee, failed to
provide warnings for our coffee products of exposure to the chemical acrylamide as required under Proposition 65. As part of
a joint defense group organized to defend against the lawsuit, we dispute these claims. Acrylamide is not added to coffee, but
is inherently present in all coffee in small amounts (measured in parts per billion) as a byproduct of the coffee bean roasting
process. The outcome and the financial impact of the case, if any, cannot be predicted at this time. Accordingly, no loss
contingency has been recorded for this matter as of April 30, 2019, as the likelihood of loss is not considered probable or
estimable. However, if we are required to pay significant statutory penalties or to add warning labels to any of our products or
place warnings in certain locations where our products are sold as a result of Proposition 65, our business and financial
results could be adversely impacted, and sales of those products could suffer not only in those locations but elsewhere. For
additional information, see Note 15: Contingencies.
Capital Resources
The following table presents our capital structure.
Current portion of long-term debt
Short-term borrowings
Long-term debt, less current portion
Total debt
Shareholders’ equity
Total capital
April 30,
2019
2018
$
798.5
426.0
4,686.3
$ 5,910.8
7,970.5
$13,881.3
$
—
144.0
4,688.0
$ 4,832.0
7,891.1
$12,723.1
In April 2018, 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 $1.5 billion. The full amount of the Term Loan was drawn on
May 14, 2018, to partially finance the Ainsworth acquisition. 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 Term Loan matures on May 14, 2021, and does not require scheduled
amortization payments. Voluntary prepayments are permitted without premium or penalty. As of April 30, 2019, we have
prepaid $700.0 on the Term Loan. The interest rate on the Term Loan at April 30, 2019, was 3.62 percent.
We have available a $1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022.
Additionally, we participate in a commercial paper program under which we can issue short-term, unsecured commercial
paper not to exceed $1.8 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, 2019, we
had $426.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a
weighted-average interest rate of 2.75 percent.
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.
During 2019, we did not repurchase any common shares under a repurchase plan authorized by the Board. At April 30, 2019,
approximately 3.6 million common shares remain 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.
In June 2017, we began construction of a Smucker’s Uncrustables frozen sandwich manufacturing facility in Longmont,
Colorado. 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, the first
of which includes an initial investment of up to $250.0 to construct and equip the new facility. The scope of a phase 2
expansion will depend on product demand. Production is expected to begin at the new facility during the second half of
calendar year 2019.
The following table presents certain cash requirements related to 2020 investing and financing activities based on our current
expectations.
Principal payments – excludes the impact of potential debt refinancing
Dividend payments – based on current rates and common shares outstanding
Capital expenditures
Interest payments – excludes the impact of potential debt refinancing
Projection
Year Ending
April 30, 2020
800.0
$
390.0
310.0
205.0
Absent any 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, including capital expenditures, the payment
of quarterly dividends, principal and interest payments on debt outstanding, and share repurchases.
During 2019, we repatriated $122.9 of international cash in conjunction with the restructuring of our international holding
and operating entities referenced in “Restructuring Activities” in this discussion and analysis to simplify and align our foreign
structure with the current strategy of the International business. The applicable foreign withholding taxes and state income
taxes were not significant. As of April 30, 2019, total cash and cash equivalents of $95.2 was held by our foreign subsidiaries,
primarily in Canada. The undistributed earnings of our foreign subsidiaries remain permanently reinvested.
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26
NON-GAAP FINANCIAL MEASURES
We use non-GAAP financial measures including: net sales excluding acquisition, divestiture, and foreign currency exchange;
adjusted gross profit; adjusted operating income; adjusted income; adjusted 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 certain non-GAAP financial 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 amortization expense and impairment charges related to intangible assets,
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 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. During 2018, we expanded our non-GAAP measures
to also exclude certain one-time discrete tax adjustments. These adjustments, which were finalized in 2019, include the effect
of the one-time items associated with the Act, comprised of the remeasurement of our U.S. deferred tax assets and liabilities
and the recognition of the one-time repatriation tax on earnings of certain foreign subsidiaries that were previously tax
deferred (“transition tax”). Also included in the one-time discrete tax adjustments are the permanent tax impacts related to the
goodwill impairment charges recorded during 2019 and 2018. For further details on these adjustments, refer to Note 13:
Income Taxes, and Note 7: Goodwill and Other Intangible Assets. We believe that excluding these one-time discrete tax
adjustments from our non-GAAP measures provides comparability across the periods presented.
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.
The following table reconciles certain non-GAAP measures to the comparable GAAP financial measure. See page 20 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
Goodwill impairment charges
Other intangible assets 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 tax expense (benefit)
Amortization
Goodwill impairment charges
Other intangible assets 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 tax expense (benefit)
Interest expense – net
Depreciation
Amortization
Goodwill impairment charges
Other intangible assets impairment charges
EBITDA (as adjusted)
Free cash flow reconciliation:
2019
2018
2017
2016
2015
Year Ended April 30,
$ 2,915.7
54.2
—
$ 2,969.9
$ 2,836.1
(37.3)
3.9
$ 2,802.7
$ 2,835.3
27.2
5.7
$ 2,868.2
$ 2,967.8
(12.0)
12.2
$ 2,968.0
$ 1,968.7
24.5
6.2
$ 1,999.4
$
928.6
240.3
97.9
107.2
54.2
—
64.1
$ 1,492.3
$ 1,044.0
206.8
145.0
31.9
(37.3)
3.9
45.4
$ 1,439.7
$ 1,042.6
207.3
—
133.2
27.2
5.7
76.9
$ 1,492.9
$ 1,146.3
208.4
—
—
(12.0)
12.2
135.9
$ 1,490.8
$
514.4
187.2
240.3
97.9
107.2
54.2
—
64.1
$ 1,265.3
322.6
942.7
113.7
8.29
$
$
$ 1,338.6
(477.6)
206.8
145.0
31.9
(37.3)
3.9
45.4
$ 1,256.7
352.1
904.6
113.6
7.96
$
$
$
592.3
286.1
207.3
—
133.2
27.2
5.7
76.9
$ 1,328.7
432.8
895.9
116.1
7.72
$
$
$
688.7
289.2
208.4
—
—
(12.0)
12.2
135.9
$ 1,322.4
391.1
931.3
119.5
7.79
$
$
$
514.4
187.2
207.9
206.0
240.3
97.9
107.2
$ 1,560.9
$ 1,338.6
(477.6)
174.1
206.3
206.8
145.0
31.9
$ 1,625.1
$
592.3
286.1
163.1
211.7
207.3
—
133.2
$ 1,593.7
$
688.7
289.2
171.1
221.7
208.4
—
—
$ 1,579.1
$
$
$
$
$
$
$
$
$
$
785.3
109.7
—
1.2
24.5
6.2
56.6
983.5
344.9
178.1
109.7
—
1.2
24.5
6.2
56.6
721.2
245.6
475.6
103.7
4.59
344.9
178.1
79.9
157.5
109.7
—
1.2
871.3
739.1
(247.7)
491.4
Net cash provided by (used for) operating activities
Additions to property, plant, and equipment
Free cash flow
$ 1,141.2
(359.8)
781.4
$
$ 1,218.0
(321.9)
896.1
$
$ 1,059.0
(192.4)
866.6
$
$ 1,461.0
(201.4)
$ 1,259.6
(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. Income taxes, as adjusted has been further adjusted to reflect the exclusion of certain one-time
discrete tax adjustments related to U.S. tax reform and the goodwill impairment charges recorded during 2019 and 2018.
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28
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.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations by fiscal year at April 30, 2019.
Total
2020
2021–2022
2023–2024
2025 and
beyond
Long-term debt obligations, including current portion (A) $ 5,500.0
Interest payments (B)
1,664.5
Operating lease obligations (C)
Purchase obligations (D)
Other liabilities (E)
Total
1,574.1
165.8
314.1
$ 9,218.5
$
800.0
$ 1,950.0
$
— $ 2,750.0
192.5
43.0
1,361.1
27.9
302.8
67.2
185.2
54.5
211.5
37.1
26.4
34.0
957.7
18.5
1.4
197.7
$ 2,424.5
$ 2,559.7
$
309.0
$ 3,925.3
(A) Long-term debt obligations, including current portion, excludes the impact of offering discounts, make-whole payments, and debt
issuance costs.
(B) Interest payments consists of the interest payments on our long-term debt, which reflect estimated payments for our variable-rate debt
based on the current interest rate outlook, and exclude the mark-to-market impact of active interest rate contracts.
(C) Operating lease obligations consists of the minimum rental commitments under non-cancelable operating leases.
(D) Purchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services, which primarily
consist of obligations related to normal, ongoing purchase obligations in which we have guaranteed payment to ensure availability of
raw materials. We expect to receive consideration for these purchase obligations in the form of materials and services. These purchase
obligations do not represent all future purchases expected, but represent only those items for which we are contractually obligated.
Amounts included in the table above represent our current best estimate of payments due. Actual cash payments may vary due to the
variable pricing components of certain purchase obligations.
(E) Other liabilities consists primarily of projected commitments associated with our defined benefit pension and other postretirement
benefit plans, as well as $5.4 related to capital lease obligations. The liability for unrecognized tax benefits and tax-related net interest
of $17.1 under FASB Accounting Standards Codification (“ASC”) 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.
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. The costs of these programs are classified as a
reduction of sales. 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 2019,
2018, and 2017, subsequent period adjustments were less than 2 percent of both consolidated pre-tax income and cash
provided by operating activities. These promotional expenditures, including amounts classified as a reduction of sales,
represented 36 percent of net sales in 2019. 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 material uncertain tax positions, we have
recognized a liability for unrecognized tax benefits, including any applicable interest and penalty charges.
We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance
if, based on all available evidence, we determine that it is more likely than not that all or some portion of such assets will not
be realized. 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 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 $163.6 and $129.1 at
April 30, 2019 and 2018, respectively. In evaluating our ability to recover our deferred tax assets within the jurisdiction from
which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning strategies, and results of operations. For those jurisdictions where the
expiration date of tax carry-forwards or the projected operating results indicate that realization is not likely, a valuation
allowance would have been provided.
As of April 30, 2019, the undistributed earnings of our foreign subsidiaries, primarily in Canada, remain permanently
reinvested.
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 on February 1, and more
often if indicators of impairment exist. At April 30, 2019, the carrying value of goodwill and other intangible assets totaled
$13.0 billion, compared to total assets of $16.7 billion and total shareholders’ equity of $8.0 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 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, 2019, goodwill totaled $6.3 billion. Goodwill is substantially concentrated within the U.S. Retail Pet Foods, U.S.
Retail Coffee, and U.S. Retail Consumer Foods segments. During 2019, we recognized a goodwill impairment charge of
$97.9 related to the goodwill of the Natural Foods reporting unit within the U.S. Retail Consumer Foods segment, which was
driven by a reduction in our long-term net sales and profitability projections. There is no goodwill remaining within the
Natural Foods reporting unit as a result of this charge. The estimated fair value of each remaining reporting unit was
substantially in excess of its carrying value as of the annual test date, with the exception of the Pet Foods reporting unit, for
which its fair value exceeded its carrying value by approximately 1 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 below carrying value.
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.
29
30
At April 30, 2019, other indefinite-lived intangible assets totaled $3.0 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, 2019, the
estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks, and
in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent, with the exception of the
indefinite-lived trademarks within the U.S. Retail Pet Foods segment. During 2019 and 2018, we recognized impairment
charges of $107.2 and $31.9, respectively, 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.
The carrying values of the goodwill and indefinite-lived intangible assets within the U.S. Retail Pet Foods segment remain
susceptible to future impairment charges given the narrow differences between fair value and carrying value at
April 30, 2019. In addition, any significant adverse changes to the forecasted net sales or profitability, as well as any
significant adverse changes in strategy, could result in future impairment charges which could be material. For additional
information, see Note 7: Goodwill and Other Intangible Assets.
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 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.
We utilize a spot rate methodology 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. For 2020
expense recognition, we will use weighted-average discount rates for the U.S. defined benefit pension plans of 3.99 percent
to determine benefit obligation, 4.20 percent to determine service cost, and 3.61 percent to determine interest cost, and a rate
of compensation increase of 3.56 percent. For the Canadian defined benefit pension plans, we will use weighted-average
discount rates of 3.21 percent to determine benefit obligation, 3.29 percent to determine service cost, and 2.86 percent to
determine interest cost, and a rate of compensation increase of 3.00 percent. In addition, we anticipate using an expected rate
of return on plan assets of 5.28 percent and 5.00 percent for the U.S. and Canadian defined benefit pension plans,
respectively.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report on Form 10-K 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” of this Annual Report on Form 10-K, as well as the following:
•
•
•
•
•
•
our ability to achieve synergies and cost savings related to the Ainsworth acquisition in the amounts and within the
time frames currently anticipated;
our ability to achieve cost savings related to our cost management programs in the amounts and within the time
frames currently anticipated;
our ability to generate sufficient cash flow to meet our cash deleveraging objectives;
volatility of commodity, energy, and other input costs;
risks associated with derivative and purchasing strategies we employ to manage commodity pricing and interest rate
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 product innovation;
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, including tariffs;
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 on
Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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, 2019, 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, LIBOR, and commercial paper rates in the U.S.
We utilize derivative instruments to manage interest risk associated with anticipated debt transactions, as well as to manage
changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and
documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market
gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss),
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 contract 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 contract are equal to changes in the fair value of the
underlying debt and have no net impact on earnings.
We entered into interest rate contracts in November 2018 and June 2018, with notional values of $300.0 and $500.0,
respectively, to manage our exposure to interest rate volatility associated with anticipated debt financing in 2020. These
interest rate contracts are designated as cash flow hedges, and as a result, unrealized losses of $49.1 were deferred in
accumulated other comprehensive income (loss) at April 30, 2019. A hypothetical 10 percent decrease in treasury rates at
April 30, 2019, would result in a loss of $28.4 on the fair value of these interest rate contracts.
In 2018, we terminated a treasury lock concurrent with the pricing of the Senior Notes due December 15, 2027, which was
designated as a cash flow hedge and used to manage our exposure to interest rate volatility. The termination resulted in a gain
of $2.7, which was deferred and included as a component of accumulated other comprehensive income (loss) and is being
amortized as a reduction to interest expense over the life of the debt.
31
32
Item 8.
Financial Statements and Supplementary Data.
THE J. M. SMUCKER COMPANY
INDEX TO FINANCIAL STATEMENTS
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
Report of Management on Responsibility for Financial Reporting
Consolidated Balance Sheets at April 30, 2019 and 2018
For the years ended April 30, 2019, 2018, and 2017:
Statements of Consolidated Income
Statements of Consolidated Comprehensive Income
Statements of Consolidated Cash Flows
Statements of Consolidated Shareholders’ Equity
Notes to Consolidated Financial Statements
Page No.
35
36
37
38
40
39
39
41
42
43
In 2015, we terminated the interest rate swap on the 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 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, 2019, the remaining benefit of $20.5 was recorded as an increase in the long-term debt
balance.
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, 2019, would increase the fair value of our long-term debt by $283.9.
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, 2019, are not expected to result in a significant impact on future earnings or
cash flows.
We utilize foreign currency derivatives to manage the effect 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 cost of
products sold. Based on our hedged foreign currency positions as of April 30, 2019, a hypothetical 10 percent change in
exchange rates would not materially impact the fair value.
Revenues from customers outside the U.S., subject to foreign currency exchange, represented 5 percent of net sales during
2019. 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.
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 derivatives 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,
2019
2018
$
$
51.6
25.3
37.0
36.0
17.0
26.8
The estimated fair value was determined using quoted market prices and was based on our net derivative position by
commodity for the previous four quarters. 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 instrument; thus, we would expect that
any gain or loss in the estimated fair value of these derivatives would generally be offset by an increase or decrease in the
estimated fair value of the underlying exposures.
33
34
REPORT OF MANAGEMENT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Shareholders
The J. M. Smucker Company
Board of Directors and 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, 2019. 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, 2019.
Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over
financial reporting as of April 30, 2019, and their report thereon is included on page 36 of this report.
Mark T. Smucker
President and
Chief Executive Officer
Mark R. Belgya
Vice Chair and
Chief Financial Officer
Opinion on Internal Control Over Financial Reporting
We have audited The J. M. Smucker Company’s internal control over financial reporting as of April 30, 2019, 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”). In our opinion, The J. M. Smucker Company (the
“Company”) maintained, in all material respects, effective internal control over financial reporting as of April 30, 2019, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of April 30, 2019 and 2018, 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, 2019, and the related notes and our report dated June 17, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
The 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 are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Akron, Ohio
June 17, 2019
35
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF MANAGEMENT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
Board of Directors and Shareholders
The J. M. Smucker Company
Shareholders
The J. M. Smucker Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The J. M. Smucker Company (the “Company”) as of
April 30, 2019 and 2018, 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, 2019, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at April 30, 2019 and 2018, and the results of its operations and its cash flows
for each of the three years in the period ended April 30, 2019, 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)
(“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2019, 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 17, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1955.
Akron, Ohio
June 17, 2019
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 three independent 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 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
37
38
THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED INCOME
THE J. M. SMUCKER COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
Net sales
Cost of products sold
Gross Profit
Selling, distribution, and administrative expenses
Amortization
Goodwill impairment charges
Other intangible assets impairment charges
Other special project costs (A)
Other operating expense (income) – net
Operating Income
Interest expense – net
Other income (expense) – net
Income Before Income Taxes
Income tax expense (benefit)
Net Income
Earnings per common share:
Net Income
Net Income – Assuming Dilution
Year Ended April 30,
2019
7,838.0
4,922.3
2,915.7
1,508.6
240.3
97.9
107.2
64.1
(31.0)
928.6
(207.9)
(19.1)
701.6
187.2
514.4
4.52
4.52
$
$
$
$
2018
7,357.1
4,521.0
2,836.1
1,362.9
206.8
145.0
31.9
45.4
0.1
1,044.0
(174.1)
(8.9)
861.0
(477.6)
1,338.6
11.79
11.78
$
$
$
$
2017
7,392.3
4,557.0
2,835.3
1,379.6
207.3
—
133.2
76.9
(4.3)
1,042.6
(163.1)
(1.1)
878.4
286.1
592.3
5.11
5.10
$
$
$
$
(A) Other special project costs includes integration and restructuring costs. For more information, see Note 3: Integration and
Restructuring Costs.
See notes to consolidated financial statements.
THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(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,
2019
$
514.4
2018
$ 1,338.6
2017
$
592.3
(19.1)
(37.5)
(9.0)
0.5
(65.1)
449.3
26.6
2.0
14.3
(1.2)
41.7
$ 1,380.3
$
(29.9)
0.4
34.1
0.4
5.0
597.3
$
(Dollars in millions)
Current Assets
Cash and cash equivalents
Trade receivables, less allowance for doubtful accounts
Inventories:
ASSETS
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
LIABILITIES AND SHAREHOLDERS’ EQUITY
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 – 113,742,296 at April 30, 2019, and 113,572,840
at April 30, 2018 (net of 32,755,434 and 32,924,890 treasury shares, respectively), at stated value
Additional capital
Retained income
Accumulated other comprehensive income (loss)
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See notes to consolidated financial statements.
April 30,
2019
2018
$
$
101.3
503.8
192.6
385.6
590.8
319.5
910.3
109.8
1,625.2
122.1
903.2
2,185.0
321.8
3,532.1
(1,619.7)
1,912.4
542.1
312.3
854.4
122.4
1,555.0
120.1
812.6
2,111.5
212.1
3,256.3
(1,527.2)
1,729.1
6,310.9
6,718.8
144.0
13,173.7
$ 16,711.3
5,942.2
5,916.5
158.4
12,017.1
$ 15,301.2
$
591.0
85.0
142.7
96.7
798.5
426.0
201.6
2,341.5
4,686.3
139.1
65.0
1,398.6
110.3
6,399.3
8,740.8
$
512.1
79.8
101.6
88.6
—
144.0
107.7
1,033.8
4,688.0
144.1
61.9
1,377.2
105.1
6,376.3
7,410.1
—
—
28.9
5,755.8
2,367.6
(181.8)
7,970.5
$ 16,711.3
28.9
5,739.7
2,239.2
(116.7)
7,891.1
$ 15,301.2
39
40
THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Dollars in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used for) operations:
Depreciation
Amortization
Goodwill impairment charges
Other intangible assets impairment charges
Share-based compensation expense
Gain on divestiture
Deferred income tax expense (benefit)
Loss on disposal of assets – net
Other noncash adjustments – net
Defined benefit pension contributions
Changes in assets and liabilities, net of effect from acquisition and divestiture:
Trade receivables
Inventories
Other current assets
Accounts payable
Accrued liabilities
Income and other taxes
Other – net
Net Cash Provided by (Used for) Operating Activities
Investing Activities
Business acquired, net of cash acquired
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 Provided by (Used for) Investing Activities
Financing Activities
Short-term borrowings (repayments) – net
Proceeds from long-term debt
Repayments of long-term debt
Quarterly dividends paid
Purchase of treasury shares
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
( ) Denotes use of cash
See notes to consolidated financial statements.
Year Ended April 30,
2019
2018
2017
$
514.4
$ 1,338.6
$
592.3
206.0
240.3
97.9
107.2
20.7
(27.7)
(93.5)
4.5
1.2
(29.3)
(53.0)
(5.3)
13.3
43.7
66.7
51.8
(17.7)
1,141.2
(1,903.0)
(359.8)
369.5
—
1.1
(32.0)
(1,924.2)
282.0
1,500.0
(700.0)
(377.9)
(5.4)
0.3
699.0
(7.3)
(91.3)
192.6
101.3
$
206.3
206.8
145.0
31.9
15.4
—
(803.4)
6.6
3.7
(39.6)
54.7
54.0
(5.3)
19.0
20.5
(28.7)
(7.5)
1,218.0
—
(321.9)
—
—
13.4
30.9
(277.6)
(310.0)
799.6
(1,050.3)
(350.3)
(7.0)
(4.0)
(922.0)
7.4
25.8
166.8
192.6
$
$
211.7
207.3
—
133.2
22.0
—
(79.4)
4.4
0.4
(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
Common
Shares
Outstanding
116,306,894
Common
Shares
$
29.1
Additional
Capital
$ 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
(54,535)
187,822
—
—
(5.8)
21.3
113,572,840
0.5
28.9
(0.5)
5,739.7
Retained
Income
$1,267.7
592.3
(273.2)
(346.5)
0.2
1,240.5
1,338.6
(1.2)
(353.7)
15.0
2,239.2
514.4
(Dollars in millions)
Balance at May 1, 2016
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared, $3.00 per common share
Other
Balance at April 30, 2017
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared, $3.12 per common share
Reclassification of stranded tax effects (A)
Other
Balance at April 30, 2018
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared, $3.40 per common share
Other
Balance at April 30, 2019
Accumulated
Other
Comprehensive
Income (Loss)
$
(148.4) $
5.0
(143.4)
41.7
(15.0)
(116.7)
(65.1)
Total
Shareholders’
Equity
7,008.5
592.3
5.0
597.3
(437.6)
28.2
(346.5)
0.3
6,850.2
1,338.6
41.7
1,380.3
(7.0)
21.3
(353.7)
—
—
7,891.1
514.4
(65.1)
449.3
(5.4)
21.5
(386.0)
—
7,970.5
(50,723)
220,179
113,742,296
$
—
—
—
28.9
(5.4)
21.5
—
(386.0)
—
$
$2,367.6
$ 5,755.8
(181.8) $
(A) During the fourth quarter of 2018, we elected to early adopt Accounting Standards Update (“ASU”) 2018-02, Income Statement –
Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income, which allowed us to reclassify the stranded income tax effects resulting from the Act from accumulated other comprehensive
income (loss) to retained earnings.
See notes to consolidated financial statements.
41
42
THE J. M. SMUCKER COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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. 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, among others: 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: Most of our revenue is derived from the sale of food and beverage products to food retailers and
foodservice distributors and operators. We recognize revenue when obligations under the terms of a contract with a customer
have been satisfied. This occurs when control of our products transfers, which typically takes place upon delivery to or pick
up by the customer. Amounts due from our customers are classified as trade receivables in the Consolidated Balance Sheets
and require payment on a short-term basis.
Transaction price is based on the list price included in our published price list, which is then reduced by the estimated impact
of variable consideration, such as trade marketing and merchandising programs, discounts, unsaleable product allowances,
returns, and similar items, in the same period that the revenue is recognized. To estimate the impact of these costs, we
consider customer contract provisions, historical data, and our current expectations.
Our trade marketing and merchandising programs consist of various promotional activities 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 2019, 2018, and 2017, subsequent period adjustments were less than 2 percent of both consolidated pre-tax
income and cash provided by operating activities. Total promotional expenditures, including amounts classified as a reduction
of sales, represented 36 percent, 35 percent, and 33 percent of net sales in 2019, 2018, and 2017, 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.
For revenue disaggregated by reportable segment, geographical region, and product category, see Note 5: Reportable
Segments.
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 primarily relate
to the warehousing costs incurred to store our products. Total distribution costs recorded within SD&A were $266.6, $245.4,
and $252.9 in 2019, 2018, and 2017, respectively.
Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $237.5, $194.2, and $169.8 in
2019, 2018, and 2017, 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
43
to time spent on R&D activities. Other costs include the depreciation and maintenance of research facilities. Total R&D
expense was $56.0, $56.0, and $58.1 in 2019, 2018, and 2017, 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.
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 performance criteria will be met. The stock
options vest over a period of one to three 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.
Year Ended April 30,
2019
2018
2017
Share-based compensation expense included in SD&A
Share-based compensation expense (benefit) included in other special project costs (A)
Total share-based compensation expense
Related income tax benefit
$
$
$
20.1
0.6
20.7
4.9
$
$
$
13.7
1.7
15.4
4.6
$
$
$
22.3
(0.3)
22.0
7.2
(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, 2019, total unrecognized share-based compensation cost related to nonvested share-based awards was $45.1.
The weighted-average period over which this amount is expected to be recognized is 3.3 years.
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 2019, 2018, and 2017, the excess tax benefits
realized upon exercise or vesting of share-based compensation were $0.5, $1.5, and $3.3, 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
2019, 2018, and 2017 were $37.1, $36.3, and $31.9, 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 tax benefit is recognized when it is more likely than not to be sustained. 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.
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 FASB 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.
On December 22, 2017, the U.S. government enacted the Act, legislating comprehensive tax reform that reduced the U.S.
federal statutory corporate tax rate from 35.0 percent to 21.0 percent effective January 1, 2018, broadened the U.S. federal
income tax base, required companies to pay a one-time transition tax, and created new taxes on certain foreign-sourced
earnings as part of a new territorial tax regime. For additional information, see Note 13: Income Taxes.
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
44
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, 2019 and 2018, the allowance for
doubtful accounts was $1.8 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.
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 $72.5 and $80.9 at April 30, 2019 and 2018,
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 the 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 interest rate risk associated with anticipated debt transactions, as well as to
manage changes in the fair value of our long-term debt. 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 contract are deferred and included as a component of accumulated other comprehensive income (loss), 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 contract 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 contract 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 2019,
2018, and 2017 totaled $99.2, $95.2, and $101.0, respectively. As of April 30, 2019, our minimum operating lease obligations
were as follows: $43.0 in 2020, $36.7 in 2021, $30.5 in 2022, $24.8 in 2023, and $12.3 in 2024.
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 whenever events or changes in circumstances indicate that 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 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 its estimated fair value of the assets. 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. Furthermore, 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 of that indicate the carrying value of our long-lived assets may not be recoverable at April 30, 2019.
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
current year annual impairment test date, 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, 2019
and 2018, the fair value of these investments was $40.9 and $45.8, respectively, and was included in other noncurrent assets
in the Consolidated Balance Sheets. Included in accumulated other comprehensive income (loss) at April 30, 2019 and 2018,
were unrealized pre-tax gains of $5.4 and $4.7, respectively.
Equity Method Investments: Investments in common stock of entities other than our consolidated 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 Away From Home or the consolidated financial statements for the year
ended April 30, 2017.
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, 2019 and 2018.
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 income (loss). Included
in accumulated other comprehensive income (loss) at April 30, 2019 and 2018, were foreign currency losses of $35.5 and
$16.4, respectively.
Recently Issued Accounting Standards: In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and
Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. It will be effective for us on May 1, 2020, with the option to early adopt
at any time prior to the effective date, and will require adoption on either a retrospective or prospective basis for all
implementation costs incurred after the date of adoption. We expect to early adopt as of May 1, 2019, and apply this standard
on a prospective basis. We anticipate capitalizing implementation costs of approximately $10.0 related to third-party cloud
computing services during 2020.
In August 2018, the FASB also issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General
(Subtopic 715-20) Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which
modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans.
The guidance removes disclosures that are no longer considered cost beneficial and adds new and clarifies certain other
disclosure requirements. ASU 2018-14 will be effective for us on May 1, 2020, with the option to early adopt at any time
prior to the effective date, and it will require adoption on a retrospective basis. We do not anticipate that the adoption of this
ASU will have a material impact on our disclosures.
45
46
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, to
eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of U.S. GAAP or other regulatory
requirements. Among other changes, the amendments remove the requirement to provide the ratio of earnings to fixed
charges exhibit and reduce the requirements for supplemental pro forma information related to business combinations. The
annual requirement to disclose dividends declared and the high and low trading prices of our common stock each quarter of
the two previous years is also removed. In addition, the disclosure requirements related to the analysis of shareholders' equity
are expanded for interim financial statements. An analysis of the changes in each caption of shareholders’ equity presented in
the balance sheet must be provided in a note or separate statement, as well as the amount of dividends per share for each class
of shares. Although this rule was effective on November 5, 2018, the SEC is allowing an extended transition period to
implement the expanded shareholders’ equity disclosure requirements, which will be effective for us on May 1, 2019. While
the new shareholders’ equity disclosure requirements will impact our interim financial statements beginning in 2020, the
amendments in this rule did not have a material impact on our financial statements and disclosures.
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 was effective for us on May 1, 2018. The change in presentation of service cost was applied retrospectively,
while the capitalization of service cost will be applied on a prospective basis. The adoption of this ASU did not have a
material impact on our financial statements and disclosures.
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 was effective for us on May 1, 2018, and required adoption on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this
ASU did not have an 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 makes changes to how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. ASU 2016-15 was effective for us on May 1, 2018, and required adoption on a
retrospective basis. The adoption of this ASU did not impact the presentation of our financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use
asset and lease liability for all leases with a term of more than 12 months. ASU 2016-02 will be effective for us on
May 1, 2019, and requires a modified retrospective application. In July 2018, the FASB issued ASU 2018-11, Leases
(Topic 842) Targeted Improvements, which provides an additional transition method that allows entities to initially apply the
new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in
the period of adoption without restating prior periods. We plan to utilize this transition method upon adoption, and as a result,
we will not adjust comparative period financial information or make the new required lease disclosures for periods before the
effective date.
Our preparation for the adoption of ASU 2016-02 is substantially complete. We have compiled an inventory of our lease
arrangements in order to determine the impact the new guidance will have on our financial statements and disclosures and
have implemented new lease accounting software in preparation for the standard’s additional reporting requirements. We
have elected certain practical expedients available under the guidance, including a package of practical expedients which
allows us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs.
Based on our assessment to date, we expect that the adoption of ASU 2016-02 will result in the recognition of right-of-use
assets and corresponding lease liabilities in the range of $160.0 to $175.0 in our Consolidated Balance Sheet as of
May 1, 2019. We do not expect the new standard to have a material impact on our Statement of Consolidated Income or
Statement of Consolidated Cash Flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the
new guidance is that an entity must recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It
requires additional disclosures to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash
flows relating to customer contracts. We adopted the requirements of ASU 2014-09 and all related amendments on
May 1, 2018, using the modified retrospective transition method. The adoption did not have an impact on our financial
statements. The additional disclosures required are presented above within the Revenue Recognition accounting policy and
within Note 5: Reportable Segments.
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, peanuts, animal protein meals, oils and fats, sweeteners, grains, 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, investor speculation, 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 K-Cup® pods and 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 raw 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, toppings, and syrups, 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, 24 percent are covered by union contracts at nine manufacturing locations. The contracts vary in
term, with seven contracts expiring in 2020, representing 19 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 May 14, 2018, we acquired the stock of Ainsworth in an all-cash transaction, valued at $1.9 billion, inclusive of a
working capital adjustment. The transaction was funded with a bank term loan and borrowings under our commercial paper
program of approximately $1.5 billion and $400.0, respectively. For additional information on the financing associated with
this transaction, refer to Note 8: Debt and Financing Arrangements.
Ainsworth is a leading producer, distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S.
The majority of Ainsworth’s sales are generated by the Rachael Ray Nutrish brand, which is driving significant growth in the
premium pet food category. Ainsworth also sells pet food and pet snacks under several additional branded and private label
trademarks. Prior to acquisition, Ainsworth was a privately-held company headquartered in Meadville, Pennsylvania. In
addition to its headquarters, the transaction included two manufacturing facilities owned by Ainsworth, which are located in
Meadville, Pennsylvania, and Frontenac, Kansas, and a leased distribution facility in Greenville, Pennsylvania.
The transaction was accounted for under the acquisition method of accounting, and accordingly, the results of Ainsworth’s
operations, including $747.0 in net sales and $40.8 in operating income, are included in our consolidated financial statements
in 2019. The operating income was reduced by the recognition of an unfavorable fair value purchase accounting adjustment
of $10.9, attributable to the acquired inventory.
The final 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 other estimates made by management. The purchase price exceeded the
estimated fair value of the net identifiable tangible and intangible assets acquired, and the excess was recognized as goodwill.
Changes to the preliminary fair values during 2019 resulted in a net adjustment to goodwill of $64.1, which was primarily
attributable to the finalization of the acquisition date fair value of the identifiable intangibles and the related impact on
deferred taxes. The impact of this adjustment to previous period earnings and the consolidated financial statements is
immaterial.
47
48
The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date.
Note 3: Integration and Restructuring Costs
Assets acquired:
Cash and cash equivalents
Trade receivables
Inventories
Other current assets
Property, plant, and equipment
Goodwill
Other intangible assets
Other noncurrent assets
Total assets acquired
Liabilities assumed:
Current liabilities
Deferred tax liabilities
Other noncurrent liabilities
Total liabilities assumed
Net assets acquired
$
$
$
$
$
1.6
66.3
97.8
4.8
83.8
617.8
1,260.6
0.3
2,133.0
83.3
126.1
19.0
228.4
1,904.6
As a result of the acquisition, we recognized goodwill of $617.8 within the U.S. Retail Pet Foods segment. Goodwill
represents the value we expect to achieve through the implementation of operational synergies and growth opportunities as
we integrate Ainsworth into our U.S. Retail Pet Foods segment. Of the total goodwill, $446.0 was deductible for income tax
purposes at the acquisition date, of which $416.3 remains deductible at April 30, 2019. The goodwill and indefinite-lived
trademarks within the U.S. Retail Pet Foods segment, inclusive of the recently acquired Ainsworth business, remain
susceptible to future impairment charges, as the carrying values approximate estimated fair values. Any significant adverse
change in our near or long-term projections or macroeconomic conditions would result in future impairment charges. For
more information, see Note 7: Goodwill and Other Intangible Assets.
The purchase price was allocated to the identifiable other intangible assets acquired as follows:
Intangible assets with finite lives:
Customer and contractual relationships (25-year useful life)
Trademarks (5-year useful life)
Intangible assets with indefinite lives:
Trademarks
Total other intangible assets
$
$
951.0
1.6
308.0
1,260.6
Ainsworth’s results of operations are included in our consolidated financial statements from the date of the transaction within
the U.S. Retail Pet Foods segment. Had the transaction occurred on May 1, 2017, unaudited pro forma consolidated results
for 2019 and 2018, would have been as follows:
Net sales
Net income
Year Ended April 30,
2019
2018
$
7,865.4
522.6
$
8,036.9
1,234.6
The unaudited pro forma consolidated results are based on our historical financial statements and those of Ainsworth, and do
not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning
of the applicable period presented. The most significant pro forma adjustments relate to the elimination of nonrecurring
acquisition-related costs incurred prior to the close of the transaction, amortization of acquired intangible assets, depreciation
of acquired property, plant, and equipment, and higher interest expense associated with acquisition-related financing. The
unaudited pro forma consolidated results do not give effect to the synergies of the acquisition and are not indicative of the
results of operations in future periods.
Integration and restructuring costs primarily consist of employee-related costs and other transition and termination costs
related to certain 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 relocation costs are expensed as incurred. Other transition and termination costs include fixed asset-related
charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the
integration or restructuring activities, which are expensed as incurred. These integration and restructuring 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 integration costs related to the acquisition of Ainsworth are anticipated to be approximately $50.0,
the majority of which are expected to be cash charges. Of the total anticipated integration costs, we expect approximately half
to be employee-related. All remaining integration costs are expected to be incurred by the end of 2020.
The following table summarizes our integration costs incurred related to the Ainsworth acquisition.
Employee-related costs
Other transition and termination costs
Total integration costs
2019
15.5
16.6
32.1
$
$
Total Costs
Incurred to Date
at April 30, 2019
15.5
$
16.6
32.1
$
Noncash charges of $4.1 were included in the integration costs incurred during 2019, which primarily consisted of
accelerated depreciation, and also represents the cumulative noncash charges incurred to date. The obligation related to
severance costs and retention bonuses was $1.6 at April 30, 2019.
All integration activities related to the acquisition of Big Heart were complete as of April 30, 2018, and as a result, we did not
incur any integration costs during 2019. During 2018 and 2017, we incurred total integration costs of $26.6 and $64.1,
respectively. Noncash charges of $2.6 and $3.2 were included in the total integration costs incurred in 2018 and 2017,
respectively, and primarily consisted of share-based compensation and accelerated depreciation. The obligation related to
severance costs and retention bonuses was $0.1 at April 30, 2018, and was fully satisfied at April 30, 2019.
Restructuring Costs: An organization optimization program was approved by the Board during the fourth quarter of 2016.
Under this program, we identified opportunities to reduce costs and optimize the organization. Related projects included an
organizational redesign and the optimization of our manufacturing footprint. The program was expanded at the end of 2018 to
include the restructuring of our geographic footprint, which includes the centralization of our pet food and pet snacks
business, as well as certain international non-manufacturing functions, to our corporate headquarters in Orrville, Ohio,
furthering collaboration and enhanced agility, while improving cost efficiency.
The organization optimization program was completed during 2019, and as a result, we closed our international offices in
China and Mexico, as well as the San Francisco and Burbank, California, offices. Furthermore, all coffee production at our
Harahan, Louisiana, facility was consolidated into one of our coffee facilities in New Orleans, Louisiana, during 2018. The
program resulted in total headcount reductions of approximately 450 full-time positions.
The following table summarizes our final restructuring costs incurred related to the organization optimization program.
Employee-related costs
Other transition and termination costs
Total restructuring costs
2019
2018
2017
$
$
24.9
7.1
32.0
$
$
10.1
12.6
22.7
$
$
12.4
6.2
18.6
Total Costs
Incurred to Date
at April 30, 2019
48.7
$
25.9
74.6
$
49
50
Noncash charges of $3.3, $9.8 and $2.1 were included in the restructuring costs incurred during 2019, 2018 and 2017,
respectively. Noncash charges included in total restructuring costs incurred to date were $15.2, and primarily consisted of
accelerated depreciation. The obligation related to severance costs and retention bonuses was $0.8 and $0.3 at
April 30, 2019 and 2018, respectively.
Note 4: Divestiture
On August 31, 2018, we sold our U.S. baking business to Brynwood Partners VII L.P. and Brynwood Partners VIII L.P.,
subsidiaries of Brynwood Partners, an unrelated party. The transaction included products that were primarily sold in U.S.
retail channels under the Pillsbury, Martha White, Hungry Jack, White Lily, and Jim Dandy brands, along with all relevant
trademarks and licensing agreements, and our manufacturing facility in Toledo, Ohio. This business generated net sales of
approximately $370.0 in 2018. The transaction did not include our baking business in Canada.
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 $369.5, which were net of cash transaction costs and included a working capital
adjustment. Upon completion of the transaction, we recognized a pre-tax gain of $27.7 during 2019, which is included in
other operating expense (income) – net within the Statement of Consolidated Income.
Note 5: Reportable Segments
We operate in one industry: the manufacturing and marketing of food and beverage products. We have four reportable
segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Away From Home.
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 Smucker’s, Jif , and Crisco branded
products; and the U.S. Retail Pet Foods segment primarily includes domestic sales of Rachael Ray Nutrish, Meow Mix, Milk-
Bone, Natural Balance, Kibbles ’n Bits, 9Lives, Nature’s Recipe, and Pup-Peroni branded products. The International and
Away From Home segment comprises 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, 2018, the convenience store channel, which was previously included in the U.S. retail segments, is now
included in the International and Away From Home segment. Segment performance for 2018 and 2017 has been reclassified
for this realignment.
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.
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. 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 Away From Home
Total net sales
Segment profit:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
Total segment profit
Amortization
Goodwill impairment charges
Other intangible assets impairment charges
Interest expense – net
Unallocated derivative gains (losses)
Cost of products sold – special project costs (A)
Other special project costs (A)
Corporate administrative expenses
Other income (expense) – net
Income before income taxes
Assets:
U.S. Retail Coffee
U.S. Retail Consumer Foods
U.S. Retail Pet Foods
International and Away From Home
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 Away From Home
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 Away From Home
Total additions to property, plant, and equipment
Year Ended April 30,
2019
2018
2017
$
$
$
$
$
$
$
$
$
$
$
2,122.3
1,761.5
2,879.5
1,074.7
7,838.0
676.3
406.1
503.4
198.5
1,784.3
(240.3)
(97.9)
(107.2)
(207.9)
(54.2)
—
(64.1)
(292.0)
(19.1)
701.6
4,771.9
2,850.8
7,847.0
1,019.5
222.1
16,711.3
98.3
162.4
301.4
52.8
36.5
651.4
63.9
138.9
136.0
21.0
359.8
$
$
$
$
$
$
$
$
$
$
$
2,086.8
1,985.6
2,165.3
1,119.4
7,357.1
612.4
475.3
439.4
200.1
1,727.2
(206.8)
(145.0)
(31.9)
(174.1)
37.3
(3.9)
(45.4)
(287.5)
(8.9)
861.0
4,815.4
3,217.5
5,932.3
1,043.9
292.1
15,301.2
96.6
80.2
314.8
57.8
40.6
590.0
89.4
168.9
34.3
29.3
321.9
$
$
$
$
$
$
$
$
$
$
$
2,102.3
2,072.6
2,131.8
1,085.6
7,392.3
679.7
457.1
479.0
190.9
1,806.7
(207.3)
—
(133.2)
(163.1)
(27.2)
(5.7)
(76.9)
(313.8)
(1.1)
878.4
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
(A) Special project costs include 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.
51
52
The following table presents certain geographical information.
Note 6: Earnings Per Share
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 information.
Coffee
Dog food
Pet snacks
Cat food
Peanut butter
Fruit spreads
Frozen handheld
Shortening and oils
Baking mixes and ingredients
Portion control
Juices and beverages
Other
Total net sales
Year Ended April 30,
2019
2,479.4
1,313.1
815.1
812.8
756.6
341.6
289.0
253.6
185.2
162.7
123.9
305.0
7,838.0
$
$
2018
2,469.7
756.8
767.2
702.5
745.1
353.8
254.1
258.1
437.9
160.3
140.8
310.8
7,357.1
$
$
Year Ended April 30,
2019
2018
2017
$
$
$
$
$
$
$
$
$
$
$
$
7,298.0
421.9
118.1
540.0
7,838.0
16,338.0
362.1
11.2
373.3
16,711.3
2,037.5
18.9
—
18.9
2,056.4
$
$
$
$
$
$
$
$
$
$
$
$
6,786.5
431.8
138.8
570.6
7,357.1
14,828.2
428.7
44.3
473.0
15,301.2
1,869.8
17.4
0.3
17.7
1,887.5
$
$
$
$
$
$
$
$
$
$
$
$
6,865.1
414.3
112.9
527.2
7,392.3
15,214.3
380.9
44.5
425.4
15,639.7
1,757.1
13.4
0.4
13.8
1,770.9
2017
2,492.1 U.S. Retail Coffee
Primary Reportable Segment (A)
$
718.6 U.S. Retail Pet Foods
770.7 U.S. Retail Pet Foods
704.7 U.S. Retail Pet Foods
718.4 U.S. Retail Consumer Foods
348.6 U.S. Retail Consumer Foods
226.2 U.S. Retail Consumer Foods
307.2 U.S. Retail Consumer Foods
484.2 U.S. Retail Consumer Foods
151.9
146.0 U.S. Retail Consumer Foods
323.7
7,392.3
International and Away From Home
International and Away From Home
$
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
Weighted-average common shares outstanding – assuming dilution
Net income per common share
Net income per common share – assuming dilution
Note 7: Goodwill and Other Intangible Assets
A summary of changes in goodwill by reportable segment is as follows:
Year Ended April 30,
2019
514.4
2.6
511.8
113.1
—
113.1
4.52
4.52
$
$
$
$
2018
$ 1,338.6
6.8
$ 1,331.8
113.0
—
113.0
11.79
11.78
$
$
2017
592.3
2.8
589.5
115.5
0.1
115.6
5.11
5.10
$
$
$
$
Balance at May 1, 2017
Impairment charge (A)
Other (B)
Balance at April 30, 2018
Acquisition
Divestiture
Impairment charge (A)
Other (B)
Balance at April 30, 2019
U.S. Retail
Coffee
$
$
$
2,090.9
—
—
2,090.9
—
—
—
—
2,090.9
$
$
$
U.S. Retail
Consumer
Foods
1,599.0
—
1.4
1,600.4
—
(144.3)
(97.9)
—
1,358.2
$
$
$
U.S. Retail
Pet Foods
1,969.5
(145.0)
—
1,824.5
617.8
—
—
—
2,442.3
International
and Away
From Home
417.7
—
$
8.7
426.4
—
—
—
(6.9)
419.5
$
$
Total
6,077.1
(145.0)
10.1
5,942.2
617.8
(144.3)
(97.9)
(6.9)
6,310.9
$
$
$
(A) The amounts reflected in this table represent the accumulated goodwill impairment charges, as there have been no goodwill
impairment charges recognized prior to these periods.
(B) The amounts classified as other represent foreign currency exchange adjustments.
(A) The primary reportable segment generally represents at least 75 percent of total net sales for each respective product category.
Sales to Walmart Inc. and subsidiaries amounted to 32 percent, 31 percent, and 30 percent of net sales in 2019, 2018, and
2017, respectively. 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, 2019 and 2018, included amounts due from Walmart Inc.
and subsidiaries of $137.7 and $123.1, respectively.
53
54
The following table summarizes our other intangible assets and related accumulated amortization and impairment charges,
including foreign currency exchange adjustments.
April 30, 2019
Accumulated
Amortization/
Impairment
Charges/
Foreign
Currency
Exchange
Acquisition
Cost
April 30, 2018
Accumulated
Amortization/
Impairment
Charges/
Foreign
Currency
Exchange
Net
Net
Acquisition
Cost
Finite-lived intangible assets subject to
amortization:
Customer and contractual relationships
$ 4,471.1
$
1,156.8
$ 3,314.3
$ 3,520.1
$
959.3
$ 2,560.8
Patents and technology
168.5
Trademarks
499.9
Total intangible assets subject to amortization $ 5,139.5
Indefinite-lived intangible assets not subject to
amortization:
Trademarks
Total other intangible assets
$ 3,321.1
$ 8,460.6
127.4
166.9
41.1
333.0
168.5
556.4
114.4
145.0
54.1
411.4
$
1,451.1
$ 3,688.4
$ 4,245.0
$
1,218.7
$ 3,026.3
$
$
290.7
1,741.8
$ 3,030.4
$ 6,718.8
$ 3,078.1
$ 7,323.1
$
$
187.9
1,406.6
$ 2,890.2
$ 5,916.5
Amortization expense for finite-lived intangible assets was $239.1, $204.8, and $205.9 in 2019, 2018, and 2017, respectively.
The weighted-average useful lives of the customer and contractual relationships, patents and technology, and trademarks are
24 years, 14 years, and 17 years, respectively. The weighted-average useful life of total finite-lived intangible assets is
23 years. Based on the carrying amount of intangible assets subject to amortization at April 30, 2019, the estimated
amortization expense is $235.3 for 2020, $233.3 for 2021, $229.0 for 2022, $221.4 for 2023, and $216.4 for 2024.
We review goodwill and other indefinite-lived intangible assets at least annually on February 1 for impairment and more
often if indicators of impairment exist.
During the third quarter of 2019, we began our annual planning cycle, inclusive of a strategy review within our strategic
business areas. Our planning process was not complete at the end of the third quarter; however, we made some decisions
related to certain brands resulting in a reduction in our long-term forecasted net sales of certain indefinite-lived trademarks
within the U.S. Retail Pet Foods segment, excluding the acquired Ainsworth business. As a result of the strategic decisions
made at that time, the reduction in long-term forecasted net sales for these indefinite-lived trademarks, and the narrow
differences between fair value and carrying value as of April 30, 2018, we performed an interim impairment analysis on these
trademarks during the third quarter of 2019, which resulted in an impairment charge of $107.2. This charge was included as a
noncash charge in our Statement of Consolidated Income.
As of February 1, 2019, we completed the annual impairment review, in which goodwill impairment was tested at the
reporting unit level for our seven reporting units. As a result, we recognized an impairment charge of $97.9, related to the
goodwill of the Natural Foods reporting unit within the U.S. Retail Consumer Foods segment, which was driven by a
reduction in our long-term net sales and profitability projections. The reduction in projections for the Natural Foods reporting
unit was driven by certain brand-specific strategic decisions made during the fourth quarter of 2019 that prioritized
investments in growth brands outside of the reporting unit, as well as the impact of recent category trends. The goodwill
impairment charge was included as a noncash charge in our Statement of Consolidated Income and represents the remaining
carrying value of the goodwill within the reporting unit. Furthermore, we completed an impairment review of the remaining
long-lived assets within the Natural Foods reporting unit and did not recognize any additional impairment. Related to the
remaining reporting units, we did not recognize any impairment charges related to goodwill or any of their respective
indefinite-lived trademarks.
As of the annual test date, the estimated fair value was substantially in excess of the carrying value for the majority of the
remaining reporting units and material indefinite-lived intangible assets, and in all instances, the estimated fair value
exceeded the carrying value by greater than 10 percent, with the exception of the Pet Foods reporting unit and all indefinite-
lived trademarks within the U.S. Retail Pet Foods segment. The carrying values of the goodwill and indefinite-lived
intangible assets within the U.S. Retail Pet Foods segment were
$2.4 billion and $1.5 billion, respectively, as of April 30, 2019. These intangible assets are susceptible to future impairment
charges due to narrow differences between fair value and carrying value as a result of recent impairment charges and the
acquisition of Ainsworth in May 2018. 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 below carrying value. Therefore, any significant adverse changes to the forecasted net sales or
profitability, as well as any significant adverse changes in strategy, could result in future impairment charges which could be
material.
During the third quarter of 2018, as a result of a decline in forecasted net sales for the U.S. Retail Pet Foods segment in
combination with the narrow differences between estimated fair value and carrying value of the Pet Foods reporting unit and
indefinite-lived trademarks as of April 30, 2017, we performed an interim 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. We recognized
total impairment charges of $176.9 in 2018, of which $145.0 and $31.9 related to the goodwill of the Pet Foods reporting unit
and certain indefinite-lived trademarks within the U.S. Retail Pet Foods segment, respectively. These noncash charges were
included in our Statement of Consolidated Income. Furthermore, at that time, we adopted ASU 2017-04, Intangibles -
Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment, in connection with the third quarter of 2018
interim impairment analysis. As a result, we did not perform Step 2 of the goodwill impairment test for the goodwill of the
Pet Foods reporting unit, and recorded the impairment charge based on the excess of the reporting unit’s carrying value over
its fair value, not to exceed the carrying amount of the goodwill.
Note 8: Debt and Financing Arrangements
Long-term debt consists of the following:
2.20% Senior Notes due December 6, 2019
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
3.38% Senior Notes due December 15, 2027
4.25% Senior Notes due March 15, 2035
4.38% Senior Notes due March 15, 2045
Term Loan Credit Agreement due May 14, 2021
Total long-term debt
Current portion of long-term debt
Total long-term debt, less current portion
April 30, 2019
April 30, 2018
Principal
Outstanding
300.0
$
500.0
750.0
400.0
1,000.0
500.0
650.0
600.0
800.0
5,500.0
800.0
4,700.0
$
$
Carrying
Amount (A)
$
$
$
299.5
499.0
768.4
398.0
995.2
496.2
643.5
586.0
799.0
5,484.8
798.5
4,686.3
Principal
Outstanding
300.0
$
500.0
750.0
400.0
1,000.0
500.0
650.0
600.0
—
4,700.0
—
4,700.0
$
$
Carrying
Amount (A)
298.6
497.8
775.6
397.3
994.4
495.8
643.1
585.4
—
4,688.0
—
4,688.0
$
$
$
(A) Represents the carrying amount included in the Consolidated Balance Sheets, which includes the impact of capitalized debt issuance
costs, terminated interest rate contracts, and offering discounts.
We entered into interest rate contracts in November 2018 and June 2018, with notional values of $300.0 and $500.0,
respectively, to manage our exposure to interest rate volatility associated with anticipated debt financing in 2020. These
interest rate contracts are designated as cash flow hedges, and as a result, the mark-to-market gains or losses on these
contracts are deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to
interest expense in the period during which the hedged transactions affect earnings. At April 30, 2019, unrealized losses of
$49.1 were deferred in accumulated other comprehensive income (loss) for these derivative instruments. For additional
information, see Note 10: Derivative Financial Instruments.
In April 2018, we entered into a Term Loan with a syndicate of banks and an available commitment amount of $1.5 billion.
The full amount of the Term Loan was drawn on May 14, 2018, to partially finance the Ainsworth acquisition, as discussed in
Note 2: Acquisition. Borrowings under the Term Loan bear interest on the prevailing U.S. Prime Rate or LIBOR, based on
our election, and is payable either on a quarterly basis or at the end of the borrowing term. The Term Loan does not require
scheduled amortization payments. Voluntary prepayments are permitted without premium or penalty. As of April 30, 2019,
we have prepaid $700.0 on the Term Loan to date. The interest rate on the Term Loan at April 30, 2019, was 3.62 percent. We
55
56
have incurred total capitalized debt issuance costs of $2.8, of which $2.0 was incurred upon drawing on the Term Loan in
2019, and is being amortized to interest expense over the time period for which the debt is outstanding.
The following table summarizes the components of net periodic benefit cost and the change in accumulated other
comprehensive income (loss) related to the defined benefit pension and other postretirement plans.
All of our Senior Notes outstanding at April 30, 2019, are unsecured, and interest is paid semiannually, with no required
scheduled principal payments until maturity. We may prepay 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.
We have available a $1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022.
Borrowings under the revolving credit facility bear interest on the prevailing U.S. Prime 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. We did
not have a balance outstanding under the revolving credit facility at both April 30, 2019 and 2018.
We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to
exceed $1.8 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, 2019 and 2018, we had
$426.0 and $144.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper
program at weighted-average interest rates of 2.75 percent and 2.20 percent, respectively.
Interest paid totaled $213.3, $158.9, and $162.2 in 2019, 2018, and 2017, respectively. This differs from interest expense due
to the amortization of debt issuance costs and discounts, effect of interest rate contracts, capitalized interest, payment of other
debt fees, and timing of interest payments.
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. 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.
Defined Benefit Pension Plans
Other Postretirement Benefits
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 loss (gain)
Settlement loss (gain)
Termination benefit cost
Net periodic benefit cost
2019
2018
$
2.1
23.2
(26.8)
0.9
8.3
0.3
7.1
—
$ 15.1
$
5.2
21.6
(28.8)
0.9
11.5
—
2.3
—
$ 12.7
2017
$ 12.7
25.3
(29.3)
1.1
13.8
—
(0.7)
—
$ 22.9
$
$
1.9
2.3
—
(1.3)
(0.6)
—
—
0.2
2.5
$
$
2.0
2.1
—
(1.4)
(0.3)
—
—
—
2.4
$
$
2019
2018
2017
Other changes in plan assets and benefit liabilities recognized in accumulated other
comprehensive income (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 loss (gain)
Foreign currency translation
(22.9)
0.9
8.3
0.3
7.1
1.2
3.5
0.9
11.5
—
2.3
(1.8)
$ (5.1) $ 16.4
Net change for year
$ — $ — $
2.1
1.5
1.1
13.8
28.8
(0.7)
2.5
$ 49.1
$ (2.0) $ (0.2) $
(2.8)
(1.3)
(0.6)
—
—
—
$ (6.7) $
5.5
(1.4)
(0.3)
—
—
(0.1)
3.5
$
2.3
2.6
—
(1.5)
(0.2)
—
—
—
3.2
3.0
2.3
(1.5)
(0.2)
0.1
—
—
3.7
Weighted-average assumptions used in determining net periodic benefit costs:
U.S. plans:
Discount rate used to determine benefit obligation
Discount rate used to determine service cost
Discount rate used to determine interest cost
Expected return on plan assets
Rate of compensation increase
Canadian plans:
Discount rate used to determine benefit obligation
Discount rate used to determine service cost
Discount rate used to determine interest cost
Expected return on plan assets
Rate of compensation increase
4.17% 3.95% 3.85% 4.13% 3.86% 3.80%
4.29
3.87
5.66
3.59
4.20
3.38
6.27
3.78
4.06
3.24
—
—
4.23
3.79
—
—
3.85
3.85
6.27
3.96
3.80
3.80
—
—
3.57% 3.22% 3.60% 3.55% 3.19% 3.50%
3.64
3.23
5.25
3.00
3.39
2.60
5.00
3.00
3.60
3.60
5.25
3.00
3.70
2.58
—
—
3.50
3.50
—
—
3.77
3.23
—
—
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.
57
58
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)
Benefits paid
Foreign currency translation adjustments
Curtailment
Settlement
Termination benefit cost
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
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
2019
2018
2019
2018
$
$
$
$
$
$
$
639.7
2.1
23.2
—
17.0
(33.9)
(3.6)
(1.3)
(27.7)
—
615.5
$
$
$
497.0
19.6
29.3
(33.9)
(27.7)
(4.0)
$
480.3
(135.2) $
(139.1) $
8.0
(4.1)
—
(135.2) $
677.3
5.2
21.6
—
(10.8)
(36.0)
5.8
—
(23.4)
—
639.7
$
$
$
489.2
21.5
39.6
(36.0)
(23.4)
6.1
$
497.0
(142.7) $
(144.1) $
9.5
(8.1)
—
(142.7) $
65.9
1.9
2.3
2.0
2.8
(4.7)
(0.3)
—
—
0.2
70.1
$
$
— $
—
4.7
(4.7)
—
—
— $
(70.1) $
— $
—
(5.1)
(65.0)
(70.1) $
70.7
2.0
2.1
0.2
(5.5)
(4.3)
0.7
—
—
—
65.9
—
—
4.3
(4.3)
—
—
—
(65.9)
—
—
(4.0)
(61.9)
(65.9)
The following table summarizes amounts recognized in accumulated other comprehensive income (loss) in the Consolidated
Balance Sheets, before income taxes.
April 30,
Net actuarial gain (loss)
Prior service credit (cost)
Total recognized in accumulated other comprehensive income (loss)
Defined Benefit Pension Plans
Other Postretirement Benefits
2019
(157.2) $
(3.5)
(160.7) $
2018
(150.9) $
(4.7)
(155.6) $
$
$
2019
2018
10.2
5.8
16.0
$
$
13.6
9.1
22.7
During 2020, we expect to recognize amortization of net actuarial losses and prior service credit of $7.7 and $0.3,
respectively, in net periodic benefit cost.
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 has been accounted for as a change in estimate that is effected by a change in accounting principle.
As such, we accounted for this change in methodology on a prospective basis beginning May 1, 2017, which resulted in a
benefit of approximately $4.3 in 2018.
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
2019
2018
2019
2018
3.99%
3.56
3.21%
3.00
4.17%
3.59
3.57%
3.00
3.91%
—
3.19%
—
4.13%
—
3.55%
—
For 2020, the assumed health care trend rates are 6.5 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 remain at
4.5 percent 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, 2019:
Effect on total service and interest cost components
Effect on benefit obligation
One Percentage Point
Increase
Decrease
$ — $ —
1.1
1.1
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 (gain)
Net periodic benefit cost (credit)
Changes in plan assets:
Company contributions
Benefits paid
Actual return on plan assets
Foreign currency translation
Defined Benefit Pension Plans
Other Postretirement Benefits
2019
2018
2019
2018
$
$
$
$
$
84.8
92.1
7.3
$
$
$
0.1
2.7
(4.8)
0.9
(1.1) $
$
0.1
(6.5)
6.1
(3.9)
87.6
96.4
8.8
$
$
$
0.2
2.4
(5.0)
0.8
(1.6) $
$
0.9
(6.8)
1.5
6.0
$
7.1
—
(7.1) $
— $
0.2
—
—
0.2
$
$
0.5
(0.5)
—
—
7.3
—
(7.3)
—
0.3
—
—
0.3
0.5
(0.5)
—
—
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,
$
$
$
2019
605.6
521.5
388.2
531.4
388.2
$
$
$
2018
627.9
541.3
400.6
552.9
400.6
59
60
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
3.8 percent and 5.4 percent for the years ended April 30, 2019 and 2018, respectively, which excludes administrative and
investment expenses.
Our current investment policy is to invest approximately 60 percent of assets in fixed-income securities, with the remaining
invested primarily in equity securities.
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)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
0.5
$
— $
65.7
74.3
220.6
51.8
—
412.9
$
1.8
9.2
—
—
46.3
57.3
$
$
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
3.7
$
— $
94.8
73.2
231.8
53.0
—
456.5
$
1.9
9.7
—
—
16.8
28.4
$
$
Plan Assets At
April 30, 2019
0.5
— $
—
—
—
—
—
— $
$
67.5
83.5
220.6
51.8
46.3
470.2
10.1
480.3
Plan Assets At
April 30, 2018
3.7
— $
—
—
—
—
3.2
3.2
$
$
96.7
82.9
231.8
53.0
20.0
488.1
8.9
497.0
(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 in a diversified portfolio of common stocks and index funds that primarily invest in U.S. stocks with broad
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 asset is
comprised of a pooled fund that consists of equity securities traded on active exchanges.
(C) This category is invested primarily in common stocks and other equity securities traded on active exchanges of foreign issuers 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 primarily comprised of bond funds, which seek to duplicate the return characteristics of high-quality U.S. and foreign
corporate bonds with a duration range of 10 to 13 years, as well as various U.S. Treasury Separate Trading of Registered Interest and
Principal holdings, with wide-ranging maturity dates. 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, 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 real estate fund whereby the underlying investments are contained in the Canadian market, a common
collective trust fund investing in direct commercial property funds, and a private limited investment partnership in 2018. The real
estate fund and the collective trust fund investing in direct commercial property are classified as a Level 2 asset, whereby the
underlying securities are valued utilizing quoted market prices for identical securities in active markets and based on the quoted
market prices of the underlying investments in the common collective trust, respectively. The private investment limited partnership in
2018 is classified as a Level 3 asset. The investments in this partnership were valued at estimated fair value based on audited financial
statements received from the general partner.
(G) This category is comprised of a private equity fund that consists primarily of limited partnership interests in corporate finance and
venture capital funds, as well as a private limited investment partnership. The fair value estimates of the private equity fund and
private limited investment partnership are 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 and private limited investment partnership are 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 and private limited investment partnership are removed from the total financial assets measured at fair value and
disclosed separately.
We expect to contribute approximately $1.2 to the defined benefit pension plans in 2020. We expect the following payments
to be made from the defined benefit pension and other postretirement benefit plans: $49.5 in 2020, $47.4 in 2021, $47.0 in
2022, $51.0 in 2023, $46.4 in 2024, and $222.4 in 2025 through 2029.
Multi-Employer Pension Plan: We 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 2019 and 2018, a total of $2.3 and $2.0 was contributed to the plan, respectively,
and we anticipate contributions of $2.2 in 2020.
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 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 2018, the Bakery and Confectionery Union Fund was in Red Zone status, as the current
funding status was 51.6 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, corn,
edible oils, soybean meal, and wheat. 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.
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62
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 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 interest rate risk associated with anticipated debt
transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract,
the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash
flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated
other comprehensive income (loss) 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 contract 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 contract are
equal to changes in the fair value of the underlying debt and have no net impact on earnings.
We entered into interest rate contracts in November 2018 and June 2018, with notional values of $300.0 and $500.0,
respectively, to manage our exposure to interest rate volatility associated with anticipated debt financing in 2020. These
interest rate contracts are designated as cash flow hedges, and as a result, unrealized losses of $49.1 were deferred in
accumulated other comprehensive income (loss) at April 30, 2019.
In 2018, we terminated a treasury lock concurrent with the pricing of the Senior Notes due December 15, 2027, which was
designated as a cash flow hedge and used to manage our exposure to interest rate volatility. The termination resulted in a gain
of $2.7, which was deferred and included as a component of accumulated other comprehensive income (loss) and is being
amortized as a reduction to interest expense over the life of the debt.
In 2015, we terminated the interest rate swap on the 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 recorded as an increase in
the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction of interest
expense. To date, we have recognized $33.0 of the gain, of which $8.0, $7.8, and $7.6 were recognized in 2019, 2018, and
2017, respectively. The remaining gain will be recognized as follows: $8.1 in 2020, $8.4 in 2021, and $4.0 in 2022.
The following tables set forth the gross fair value amounts of derivative instruments recognized in the Consolidated Balance
Sheets.
Derivatives designated as hedging instruments:
Interest rate contracts
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivative not designated as hedging instruments
Total derivative instruments
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivative instruments
April 30, 2019
Other
Current
Assets
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
— $
— $
4.8
1.4
6.2
6.2
$
$
$
49.1
49.1
25.8
0.2
26.0
75.1
$
$
$
$
$
— $
— $
— $
—
— $
— $
—
—
—
—
—
—
April 30, 2018
Other
Current
Assets
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
14.8
2.2
17.0
$
$
6.8
0.7
7.5
$
$
0.4
—
0.4
$
$
0.2
—
0.2
$
$
$
$
$
$
$
We have elected to not offset fair value amounts recognized for our exchange-traded 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, 2019
and 2018, we maintained cash margin account balances of $40.7 and $10.9, 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.
Interest expense – net, as presented in the Statements of Consolidated Income, was $207.9, $174.1, and $163.1 in 2019, 2018,
and 2017, respectively. The following table presents information on the pre-tax gains and losses recognized on interest rate
contracts designated as cash flow hedges.
Gains (losses) recognized in other comprehensive income (loss)
Less: Gains (losses) reclassified from accumulated other comprehensive
income (loss) to interest expense
Change in accumulated other comprehensive income (loss)
$
$
Year Ended April 30,
2019
2018
2017
(49.1) $
2.7
$
—
(0.4)
(48.7) $
(0.5)
3.2
$
(0.6)
0.6
Included as a component of accumulated other comprehensive income (loss) at April 30, 2019 and 2018, were deferred net
pre-tax losses of $52.5 and $3.8, respectively, related to the active and terminated interest rate contracts. The related net tax
benefit recognized in accumulated other comprehensive income (loss) was $12.1 and $0.9 at April 30, 2019 and 2018,
respectively. Approximately $0.8 of the net pre-tax loss will be recognized over the next 12 months related to the active and
terminated interest rate contracts.
63
64
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as
hedging instruments.
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.
Gains (losses) on commodity contracts
Gains (losses) on foreign currency exchange contracts
Total gains (losses) recognized in costs of products sold
Year Ended April 30,
2019
2018
$ (98.6) $
3.0
$ (95.6) $
6.5
(5.9)
0.6
2017
$ (45.2)
9.8
$ (35.4)
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 gains (losses) on mark-to-market valuation of unallocated derivative positions
Less: Net gains (losses) on derivative positions reclassified to segment operating profit
Unallocated derivative gains (losses)
Year Ended April 30,
2019
2018
$ (95.6) $
(41.4)
0.6
(36.7)
$ (54.2) $ 37.3
2017
$ (35.4)
(8.2)
$ (27.2)
The net cumulative unallocated derivative gains and losses at April 30, 2019 and 2018, were losses of $52.5 and gains of
$1.7, respectively.
The following table presents the gross notional value of outstanding derivative contracts.
Commodity contracts
Foreign currency exchange contracts
Interest rate contracts
Year Ended April 30,
2019
2018
$
$
544.8
144.9
800.0
658.0
122.1
—
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 remaining 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
Total long-term debt
April 30, 2019
April 30, 2018
Carrying
Amount
$
40.9
(68.9)
(5,484.8)
Fair Value
40.9
$
(68.9)
(5,504.0)
Carrying
Amount
$
45.8
9.7
(4,688.0)
Fair Value
45.8
$
9.7
(4,579.8)
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.
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, 2019
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
Interest rate contracts
Total long-term debt (C)
Total financial instruments measured at fair value
$
$
$
— $
— $
8.7
—
0.5
31.7
—
(20.7)
(0.1)
—
(4,646.6)
(4,658.2) $ (873.8) $
(0.3)
1.3
(49.1)
(857.4)
8.7
31.7
0.5
(21.0)
1.2
(49.1)
(5,504.0)
(5,532.0)
—
—
—
—
—
—
— $
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, 2018
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
Total long-term debt (C)
Total financial instruments measured at fair value
$
$
9.3
—
0.4
7.2
$
— $
— $
36.1
—
1.0
1.4
—
38.5
—
—
—
—
—
— $
$
9.3
36.1
0.4
8.2
1.5
(4,579.8)
(4,524.3)
0.1
(4,579.8)
(4,562.8) $
(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, 2019, our municipal obligations are scheduled to mature as follows: $0.4 in 2020, $1.0 in
2021, $0.5 in 2022, $1.5 in 2023, and the remaining $28.3 in 2024 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. The Level 2 interest rate contracts are valued using standard valuation techniques, the income approach,
and observable Level 2 market expectations at the measurement date to convert future amounts to a single discounted present value.
Level 2 inputs for the valuation of the interest rate contracts are limited to prices that are observable for the asset or liability. For
additional information, see Note 10: Derivative Financial Instruments.
(C) Long-term debt is composed 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 fair 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 impairment charges of $205.1 during 2019, of which $97.9 and $107.2 related to the goodwill of
the Natural Foods reporting unit within the U.S. Retail Consumer Foods segment and certain indefinite-lived trademarks in
the U.S. Retail Pet Foods segment, respectively. During 2018, we recognized impairment charges of $176.9, of which
$145.0 and $31.9 related to the goodwill of the Pet Foods reporting unit and certain indefinite-lived trademarks within the
U.S. Retail Pet Foods segment, respectively. These adjustments were included as noncash charges in our Statements of
65
66
Consolidated Income. We utilized Level 3 inputs based on management’s best estimates and assumptions to estimate the fair
value of the reporting unit and indefinite-lived trademarks. 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, 2019, there were 5,380,499 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: No stock options have been granted under the 2010 Equity and Incentive Compensation Plan since 2016.
Stock options granted in 2016 vested over periods of one to three 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 stock
options granted was equal to the market value of the shares on the date of grant, and all stock options granted and outstanding
have a contractual term of 10 years.
The following table is a summary of our stock option activity.
Outstanding at May 1, 2018
Exercised
Cancelled
Outstanding at April 30, 2019
Exercisable at April 30, 2019
Number of
Stock Options
823,332
—
423,332
400,000
400,000
$
Weighted-Average
Exercise Price
113.20
—
113.16
113.24
113.24
$
$
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the stock option. The total intrinsic value for stock options both outstanding and exercisable was $3.8 at
April 30, 2019, both with an average remaining contractual term of 6.0 years. The total intrinsic value of stock options
exercised during 2018 was $0.6, and during both 2019 and 2017, there were no stock options exercised. The closing market
price of our common stock on the last trading day of 2019 was $122.63 per share.
Compensation cost related to stock options is recognized ratably over the service period from the grant date through the end
of the requisite service period to the extent the performance objectives are likely to be achieved. During 2019, we did not
recognize any compensation cost related to stock options, as the requisite service period ended on April 30, 2018. The
compensation cost for stock option awards totaled $0.4 for the year ended April 30, 2018, and the compensation net benefit
totaled $1.0 for the year ended April 30, 2017, which was included in other special project costs in the Statements of
Consolidated Income. During 2017, we concluded that a portion of the performance objectives were unachievable, and
therefore reversed the life-to-date compensation cost recognized. The tax expense related to the stock option expense was
$0.1 for 2018, and the net benefit was $0.4 for 2017. There was no unrecognized compensation cost related to stock options
at April 30, 2019.
We did not receive cash from stock option exercises for the years ended April 30, 2019 and 2017. Cash received from stock
option exercises was $3.9 for the year ended April 30, 2018.
Other Equity Awards: The following table is a summary of our restricted shares, deferred stock units, and performance
units.
Restricted
Shares
and Deferred
Stock Units
Weighted-
Average
Grant Date
Fair Value
Performance
Units
Weighted-
Average
Conversion
Date Fair Value
Outstanding at May 1, 2018
542,358
$ 122.39
84,051
$
Granted
Converted
Vested
Forfeited
Outstanding at April 30, 2019
194,932
84,051
(158,914)
(78,851)
583,576
104.33
103.86
107.16
118.02
85,154
(84,051)
—
—
$ 118.44
85,154
$
123.68
103.86
123.68
103.86
—
—
The weighted-average grant date fair value of equity awards other than stock options that vested in 2019, 2018, and 2017 was
$17.0, $17.1, and $24.6, respectively. The vesting date fair value of equity awards other than stock options that vested in
2019, 2018, and 2017 was $17.0, $20.7, and $32.7, 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,
2019
2018
2017
Restricted
Shares
and Deferred
Stock Units
194,932
136,127
180,997
Weighted-
Average
Grant Date
Fair Value
$ 104.33
126.80
133.92
Performance
Units
85,154
84,051
73,701
Weighted-
Average
Conversion
Date Fair Value
$
123.68
103.86
126.80
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 four 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 (benefit)
Year Ended April 30,
2019
$ 659.2
42.4
$ 701.6
2018
$ 828.6
32.4
$ 861.0
2017
$ 836.8
41.6
$ 878.4
Year Ended April 30,
2019
2018
2017
$
$
227.9
16.0
36.8
(73.6)
(0.1)
(19.8)
187.2
$
$
$
277.9
7.9
40.0
(802.3)
0.5
(1.6)
(477.6) $
325.1
11.0
29.4
(78.3)
1.6
(2.7)
286.1
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68
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
Tax reform – net impact on U.S. deferred tax assets and liabilities
Tax reform – transition tax
Goodwill impairment charges
Sale of the U.S. baking business
State and local income taxes
Domestic manufacturing deduction
Deferred tax benefit from integration
Other items – net
Effective income tax rate
Income taxes paid
Year Ended April 30,
2019
21.0%
—
(0.5)
2.9
2.4
2.7
—
(2.4)
0.6
26.7%
250.9
$
2018
30.4 %
(92.0)
3.0
5.5
—
1.9
(3.0)
—
(1.3)
(55.5)%
2017
35.0%
—
—
—
—
2.1
(3.7)
—
(0.8)
32.6%
$ 336.8
$ 367.2
Income tax expense of $187.2 for 2019 includes the permanent tax impacts associated with the sale of the U.S. baking
business and a goodwill impairment charge, partially offset by a noncash deferred tax benefit related to the integration of
Ainsworth into the Company. The income tax benefit of $477.6 for 2018 included the net benefit of our discrete adjustments
resulting directly from U.S. tax reform, as discussed below, partially offset by the permanent tax impact of a goodwill
impairment charge.
U.S. Tax Reform: On December 22, 2017, the U.S. government enacted the Act, legislating comprehensive tax reform that
reduced the U.S. federal statutory corporate tax rate from 35.0 percent to 21.0 percent effective January 1, 2018, broadened
the U.S. federal income tax base, required companies to pay a one-time transition tax, and created new taxes on certain
foreign-sourced earnings as part of a new territorial tax regime.
During the third quarter of 2019, we finalized our accounting for the income tax effects of enactment of the Act, as required
by ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which resulted in an
immaterial adjustment to the net provisional benefit of $765.8 previously recorded during 2018. The net benefit included the
revaluation of net deferred tax liabilities at the reduced federal income tax rate, offset in part by the estimated impact of the
one-time transition tax.
Despite the completion of our accounting for the Act, the amounts recorded may change as a result of future guidance and
interpretation from the Internal Revenue Service (“IRS”) and various other taxing jurisdictions, all of which are continuing to
analyze the complexities and interdependencies of the provisions within the Act. Any future legislative and interpretive
actions could result in additional income tax impacts which could be material in the period any such changes are enacted.
We are a voluntary participant in the Compliance Assurance Process (“CAP”) program offered by the IRS and are currently
under a CAP examination for the tax years ended April 30, 2019 and 2018. 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, 2017 and 2016. The tax years prior to 2016 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 2015 and for the tax years prior to 2012 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
Hedging transactions
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, less allowance
Net deferred tax liability
April 30,
2019
2018
$ 1,428.3
120.5
13.4
$ 1,562.2
$ 1,393.6
98.5
14.2
$ 1,506.3
$
84.9
10.0
17.2
7.6
7.0
15.6
24.8
167.1
(3.5)
163.6
$
$ 1,398.6
$
$
75.5
0.2
18.8
5.9
6.4
0.9
24.3
132.0
(2.9)
$
129.1
$ 1,377.2
$
In accordance with purchase accounting, we recorded a deferred tax asset of $20.9 in respect of a federal net operating loss
carryforward acquired as part of the Ainsworth acquisition, of which $10.9 was utilized in 2019. We expect to fully utilize the
remaining $10.0 in 2020. We evaluate the realizability of deferred tax assets for each of the jurisdictions in which we operate.
The total valuation allowance increased by a net amount of $0.6 during the year.
During 2019, we repatriated $122.9 of international cash in conjunction with the restructuring of our foreign subsidiaries
discussed in Note 3: Integration and Restructuring Costs. Applicable foreign withholding taxes and state income taxes, which
were not significant, have been included in income tax expense. Deferred income taxes have not been provided on
approximately $57.1 of remaining temporary differences related to our investments in foreign subsidiaries since these
amounts remain permanently reinvested. It is not practical to estimate the amount of additional taxes that might be payable on
these basis differences because of the numerous methods by which these differences could reverse.
Our unrecognized tax benefits were $15.0, $32.3, and $40.4, of which $12.0, $21.5, and $23.1 would affect the effective tax
rate, if recognized, as of April 30, 2019, 2018, and 2017, respectively. Our accrual for tax-related net interest and penalties
totaled $3.3, $4.0, and $4.1 as of April 30, 2019, 2018, and 2017, respectively. The amount of tax related to net interest and
penalties credited to earnings totaled $0.8 for 2019, and charged to earnings totaled $0.1 and $0.3 during 2018 and 2017,
respectively.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated
$3.1, primarily as a result of the expiration of statute of limitation periods.
69
70
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,
2019
$ 32.3
2018
$ 40.4
2017
$ 46.3
0.9
0.3
—
1.1
0.5
—
0.7
1.2
—
—
9.0
9.5
$ 15.0
—
3.0
6.7
$ 32.3
0.9
1.1
5.8
$ 40.4
Note 14: Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), including the reclassification adjustments for items that
are reclassified from accumulated other comprehensive income (loss) to net income, are shown below.
Foreign
Currency
Translation
Adjustment
$
Net Gains (Losses)
on Cash Flow
Hedging
Derivatives (A)
Pension
and Other
Postretirement
Liabilities (B)
Unrealized
Gain (Loss) on
Available-for-Sale
Securities
Accumulated
Other
Comprehensive
Income (Loss)
$
Balance at May 1, 2016
Reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Balance at April 30, 2017
Reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Reclassification of stranded tax effects (C)
Balance at April 30, 2018
Reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Balance at April 30, 2019
$
$
$
(13.1) $
—
(29.9)
—
(43.0) $
—
26.6
—
—
(16.4) $
—
(19.1)
—
(35.5) $
(4.8) $
0.6
—
(0.2)
(4.4) $
0.5
2.7
(1.2)
(0.5)
(2.9) $
0.4
(49.1)
11.2
(40.4) $
(134.1) $
13.2
39.6
(18.7)
(100.0) $
10.7
9.2
(5.6)
(15.3)
(101.0) $
7.3
(19.1)
2.8
(110.0) $
3.6
—
0.6
(0.2)
4.0
—
(1.7)
0.5
0.8
3.6
—
0.7
(0.2)
4.1
$
$
$
(148.4)
13.8
10.3
(19.1)
(143.4)
11.2
36.8
(6.3)
(15.0)
(116.7)
7.7
(86.6)
13.8
(181.8)
(A) The reclassification from accumulated other comprehensive income (loss) to interest expense was related to terminated interest rate
contracts. The current period charge in 2019 relates to the unrealized losses on the interest rate contracts entered into in November
2018 and June 2018. The prior year credit relates to the gain on the interest rate contract terminated in 2018. For additional
information, see Note 10: Derivative Financial Instruments.
(B) Amortization of net losses and prior service costs was reclassified from accumulated other comprehensive income (loss) to other
income (expense) – net.
(C) During 2018, we adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income, which allowed us to reclassify the stranded income tax effects
resulting from the Act from accumulated other comprehensive income (loss) to retained earnings.
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,
including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business
previously owned by, but divested prior to our acquisition of, Big Heart, the significant majority of which we settled during
the second half of 2019 and the remainder of which we anticipate resolving in the near future. While we cannot predict with
certainty the ultimate results of these proceedings or potential settlements associated with these matters, we have accrued
losses for certain contingent liabilities that we have determined are probable and reasonably estimable at April 30, 2019.
Based on the information known to date, with the exception of the matter discussed below, we do not believe the final
outcome of these proceedings could have a material adverse effect on our financial position, results of operations, or cash
flows.
On May 9, 2011, CERT filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against us and
additional defendants who manufacture, package, distribute, or sell packaged coffee. The lawsuit is CERT v. Brad Barry
LLC, et al., and was a tag along to a 2010 lawsuit against companies selling “ready-to-drink” coffee based on the same
claims. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great
majority of the coffee industry in California. The Plaintiff alleges that we and the other defendants failed to provide warnings
for our coffee products of exposure to the chemical acrylamide as required under Proposition 65. The Plaintiff seeks equitable
relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory
maximum of $2,500.00 per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee,
absent a compliant warning, is equivalent to a violation under Proposition 65.
As part of a joint defense group organized to defend against the lawsuit, we dispute the claims of the Plaintiff. Acrylamide is
not added to coffee but is inherently present in all coffee in small amounts (measured in parts per billion) as a byproduct of
the coffee bean roasting process. We have asserted multiple affirmative defenses. Trial of the first phase of the case
commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On
September 1, 2015, the trial court issued a final ruling adverse to the defendants on all Phase 1 defenses. Trial of the second
phase of the case commenced in the fall of calendar year 2017. On March 28, 2018, the trial court issued a proposed ruling
adverse to the defendants on the Phase 2 defense, our last remaining defense to liability. The trial court finalized and affirmed
its Phase 2 ruling on May 7, 2018, and therefore, the trial on the third phase regarding remedies issues was scheduled to
commence on October 15, 2018. The trial did not proceed on the scheduled date as further described below.
On June 15, 2018, the state agency responsible for administering the Proposition 65 program, the California Office of
Environmental Health Hazard Assessment (“OEHHA”), issued a proposed regulation clarifying that cancer warnings are not
required for coffee under Proposition 65. The California Court of Appeals granted defendants’ requests to stay the trial on
remedies until a final determination was made on OEHHA’s proposed regulation. The California Office of Administrative
Law approved the proposed regulation on June 3, 2019, and the regulation will go into effect on October 1, 2019, which
should result in the dismissal of this case. However, prior to the approval of the proposed regulation, CERT challenged the
authority of OEHHA to propose the regulation. Considering the regulation is final, we expect this challenge to continue. At
this stage of the proceedings, prior to and without knowing whether the trial on remedies issues will move forward in light of
the challenge, we are unable to predict or reasonably estimate the potential loss or effect on our operations. Accordingly, no
loss contingency has been recorded for this matter as of April 30, 2019, as the likelihood of loss is not considered probable or
estimable. The trial court has discretion to impose zero penalties against us or to impose significant statutory penalties if the
case proceeds. Significant labeling or warning requirements that could potentially be imposed by the trial court may increase
our costs and adversely affect sales of our coffee products, as well as involve substantial expense and operational disruption,
which could have a material adverse impact on our financial position, results of operations, or cash flows. Furthermore, a
future appellate court decision could reverse the trial court rulings. The outcome and the financial impact of settlement, the
trial, or the appellate court rulings of the case, if any, cannot be predicted at this time.
Note 16: 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 any successor plan to the Rights Agreement,
dated as of May 20, 2009, between the Company and Computershare Trust Company, N.A.;
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;
71
72
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures: Management, including the principal executive officer and principal
financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or
15d-15(e) under the Exchange Act), as of April 30, 2019 (the “Evaluation Date”). Based on that evaluation, the principal
executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the
Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms,
and (2) accumulated and communicated to management, including the chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls: There were no changes in internal control over financial reporting that occurred during the
fourth quarter ended April 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information.
None.
•
•
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
determines is required or appropriate to be submitted to our shareholders under the Ohio Revised Code or applicable
stock exchange rules.
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.
Repurchase Programs: During both 2019 and 2018, we did not repurchase any common shares under a repurchase plan
authorized by the Board. At April 30, 2019, approximately 3.6 million common shares were remaining available for
repurchase pursuant to the Board’s authorizations.
Note 17: Quarterly Results of Operations (Unaudited)
The following tables summarize the unaudited quarterly results of operations for the years ended April 30, 2019 and 2018.
Net Sales
Gross Profit
Net Income
Earnings per Common Share (A):
Net Income
Net Income – Assuming Dilution
Dividends Declared per Common Share
Net Sales
Gross Profit
Net Income
Earnings per Common Share (A):
Net Income
Net Income – Assuming Dilution
Dividends Declared per Common Share
2019
First Quarter
1,902.5
$
678.2
133.0
Second Quarter
2,021.5
$
771.3
188.5
Third Quarter
2,011.9
$
773.8
121.4
Fourth Quarter
1,902.1
$
692.4
71.5
$
$
$
1.17
1.17
0.85
$
$
$
1.66
1.66
0.85
$
$
$
2018
1.07
1.07
0.85
$
$
$
0.63
0.63
0.85
First Quarter
1,748.9
$
662.1
126.8
Second Quarter
1,923.6
$
755.0
194.6
Third Quarter
1,903.3
$
728.5
831.3
Fourth Quarter
1,781.3
$
690.5
185.9
$
$
$
1.12
1.12
0.78
$
$
$
1.71
1.71
0.78
$
$
$
7.32
7.32
0.78
$
$
$
1.64
1.64
0.78
(A) 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.
73
74
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item as to the directors of the Company, the Audit Committee, the Audit Committee
financial expert, and compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the
information set forth under the captions “Election of Directors,” “Corporate Governance,” “Board and Committee Meetings,”
and “Ownership of Common Shares” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
August 14, 2019. The information required by this Item as to the executive officers of the Company is incorporated herein
by reference to Part I, Item 1 in this Annual Report on Form 10-K.
The Board of Directors has adopted a Code of Business Conduct and Ethics, last revised January 2018, which applies to our
directors, principal executive officer, and principal financial and accounting officer. The Board of Directors has adopted
charters for each of the Audit, Executive Compensation, and Nominating, Governance, and Corporate Responsibility
committees and has also adopted Corporate Governance Guidelines. Copies of these documents are available on our website
(jmsmucker.com/investor-relations/smuckers-corporate-governance).
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the information set forth under the captions
“Executive Compensation,” “Board and Committee Meetings,” and “Compensation Committee Interlocks and Insider
Participation” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated herein by reference to the information set forth under the captions
“Ownership of Common Shares” and “Equity Compensation Plan Information” in our definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on August 14, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the information set forth under the captions
“Corporate Governance” and “Related Party Transactions” in our definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 14, 2019.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated herein by reference to the information set forth under the captions
“Service Fees Paid to the Independent Registered Public Accounting Firm” and “Audit Committee Pre-Approval Policies and
Procedures” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14, 2019.
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(a)(1)
Financial Statements:
See the Index to Financial Statements on page 34 of this Annual Report.
(a)(2)
Financial Statement Schedules:
Financial statement schedules are omitted because they are not applicable or because the information required is
set forth in the Consolidated Financial Statements or notes thereto.
(a)(3)
Exhibits:
The following exhibits are either attached or incorporated herein by reference to another filing with the U.S.
Securities and Exchange Commission.
Exhibit
Number
Exhibit Description
Agreement and Plan of Merger, dated as of February 3, 2015, by and among Blue Acquisition Group, Inc., the
Company, SPF Holdings I, Inc., SPF Holdings II, LLC, and, for the limited purposes set forth therein, Blue
Holdings I, L.P.
Stock Purchase Agreement and Plan of Merger, dated as of April 4, 2018, by and among NU Pet Company,
PR Merger Sub I, LLC, Ainsworth Pet Nutrition Parent, LLC, CP APN, Inc., CP APN, L.P., and, solely for the
limited purpose set forth therein, The J. M. Smucker Company
First Amendment to Stock Purchase Agreement and Plan of Merger and Side Letter, dated as of May 14, 2018,
by and among NU Pet Company, PR Merger Sub I, LLC, Ainsworth Pet Nutrition Parent, LLC, CP APN, Inc.,
CP APN, L.P., and, solely for the limited purpose set forth therein, The J. M. Smucker Company
Amended Articles of Incorporation of The J. M. Smucker Company
Amended Regulations of The J. M. Smucker Company
Rights Agreement, dated as of May 20, 2009, by and between the Company and Computershare Trust
Company, N.A., as rights agent
Amendment No. 1, dated as of February 3, 2015, to the Rights Agreement, dated as of May 20, 2009, between
the Company and Computershare Trust Company, N.A., as rights agent
Amendment No. 2, dated as of October 24, 2016, to the Rights Agreement, dated as of May 20, 2009, by and
between the Company and Computershare Trust Company, N.A., as rights agent
Amendment No. 3, dated as of June 25, 2018, to the Rights Agreement, dated as of May 20, 2009, by and
between the Company and Computershare Trust Company, N.A., as rights agent, and subsequently amended
as of February 3, 2015, and October 24, 2016
Indenture, dated as of October 18, 2011, between the Company and U.S. Bank National Association
First Supplemental Indenture, dated as of October 18, 2011, among the Company, the guarantors party thereto,
and U.S. Bank National Association
Third Amended and Restated Intercreditor Agreement, dated June 11, 2010, among the administrative agents
and other parties identified therein
Indenture, dated as of March 20, 2015, between the Company and U.S. Bank National Association, as trustee
First Supplemental Indenture, dated as of March 20, 2015, by and among the Company, the guarantors party
thereto and U.S. Bank National Association, as trustee
Second Supplemental Indenture, dated as of December 7, 2017, between the Company and U.S. Bank
National Association, as trustee
Nonemployee Director Stock Plan dated January 1, 1997*
The J. M. Smucker Company Top Management Supplemental Retirement Benefit Plan, restated as of January
1, 2018*
Amended and Restated Consulting and Noncompete Agreement of Timothy P. Smucker, dated as of
December 31, 2010*
Amended and Restated Consulting and Noncompete Agreement of Richard K. Smucker, dated as of
December 31, 2010*
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
10.4
75
76
Exhibit
Number
10.37
10.38
10.39
21
23
24
31.1
31.2
32
Exhibit Description
Amendment No. 1 to Credit Agreement dated as of April 27, 2018, to the Revolving Credit Agreement, dated
as of September 1, 2017, among the Company and Smucker Foods of Canada Corp., as borrowers, the lenders
party thereto, and Bank of America, N.A., as administrative agent
Form of Commercial Paper Dealer Agreement between the Company, as Issuer, and the Dealer party thereto
Term Loan Credit Agreement, dated as of April 27, 2018, among the Company, as borrower, the lenders party
thereto, and Bank of America, N.A., as administrative agent
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
Certifications of Mark T. Smucker pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
Certifications of Mark R. Belgya pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
* Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
Exhibit
Number
Exhibit Description
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Termination Amendment to Amended and Restated Consulting and Noncompete Agreement of Timothy P.
Smucker, dated as of April 25, 2011*
Termination Amendment to Amended and Restated Consulting and Noncompete Agreement of Richard K.
Smucker, dated as of April 25, 2011*
The J. M. Smucker Company Voluntary Deferred Compensation Plan, Amended and Restated as of
December 1, 2012*
The J. M. Smucker Company 2006 Equity Compensation Plan, effective August 17, 2006*
The J. M. Smucker Company 2010 Equity and Incentive Compensation Plan*
Amendment No. 1 to The J. M. Smucker Company 2010 Equity and Incentive Compensation Plan*
Form of Restricted Stock Agreement*
Form of Deferred Stock Units Agreement*
Form of Special One-Time Grant of Restricted Stock Agreement*
Form of Restricted Stock Agreement*
Form of Special One-Time Grant of Restricted Stock Agreement*
Form of Special One-Time Grant of Deferred Stock Units Agreement*
Form of Restricted Stock Agreement*
Form of Deferred Stock Units Agreement*
Form of Performance Units Agreement*
Form of Restricted Stock Agreement*
Form of Deferred Stock Units Agreement*
Form of Nonstatutory Stock Option Agreement*
Form of Nonstatutory Stock Option Agreement between the Company and the Optionee (three-year vesting)*
The J. M. Smucker Company Nonemployee Director Deferred Compensation Plan (Amended and Restated
Effective January 1, 2007)*
The J. M. Smucker Company Nonemployee Director Deferred Compensation Plan (Amended and Restated
Effective January 1, 2014)*
The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement Plan, Restated
Effective May 1, 2015*
Amendment No. 1 to The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement
Plan, dated as of December 31, 2016*
The J. M. Smucker Company Restoration Plan, Amended and Restated Effective January 1, 2013*
Amendment No. 1 to The J. M. Smucker Company Restoration Plan, dated as of May 1, 2015*
Amendment No. 2 to The J. M. Smucker Company Restoration Plan, dated as of December 31, 2016*
Form of Amended and Restated Change in Control Severance Agreement between the Company and the
Officer party thereto*
Form of Indemnity Agreement between the Company and the Officer party thereto*
The J. M. Smucker Company 1998 Equity and Performance Incentive Plan (Amended and Restated Effective
June 6, 2005)*
Tax Matters Agreement between The Procter & Gamble Company, The Folgers Coffee Company, and the
Company, dated November 6, 2008
Intellectual Property Matters Agreement between The Procter & Gamble Company and The Folgers Coffee
Company, dated November 6, 2008
Revolving Credit Agreement, dated as of September 1, 2017, by and among the Company, Smucker Foods of
Canada Corp., a federally incorporated Canadian corporation, Bank of America, N.A., as administrative agent,
and the several financial institutions from time to time party thereto
77
78
SIGNATURES
D IRE C TORS AN D E XE C UTI V E L E AD ER SHIP T E AM
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 17, 2019
The J. M. Smucker Company
/s/ Mark R. Belgya
By: Mark R. Belgya
Vice Chair and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
*
Mark T. Smucker
/s/ Mark R. Belgya
Mark R. Belgya
*
President and Chief Executive Officer and Director
(Principal Executive Officer)
Vice Chair and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Timothy P. Smucker
Chairman Emeritus
*
Richard K. Smucker
Executive Chairman
*
Kathryn W. Dindo
Director
*
Paul J. Dolan
Director
*
Jay L. Henderson
Director
*
Elizabeth Valk Long
Director
*
Gary A. Oatey
*
Kirk L. Perry
*
Director
Director
Sandra Pianalto
Director
*
Nancy Lopez Russell
Director
*
Alex Shumate
Director
*
Dawn C. Willoughby
Director
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
June 17, 2019
*
The undersigned, by signing her name hereto, does sign and execute this report pursuant to the powers of attorney
executed by the above-named officers and directors of the registrant, which are being filed herewith with the Securities
and Exchange Commission on behalf of such officers and directors.
Date: June 17, 2019
/s/ Jeannette L. Knudsen
Jeannette L. Knudsen
Attorney-in-Fact
By:
79
DIRECTORS
Kathryn W. DindoA
Retired Vice President and
Chief Risk Officer
FirstEnergy Corp.
Akron, Ohio
Paul J. DolanE
Chairman and Chief Executive Officer
Cleveland Indians
Cleveland, Ohio
Jay L. HendersonA
Retired Vice Chairman, Client Service
PricewaterhouseCoopers LLP
Chicago, Illinois
Gary A. OateyE, G
Executive Chairman
Oatey Co.
Cleveland, Ohio
Kirk L. PerryE
President, Brand Solutions
Google Inc.
Mountain View, California
Sandra PianaltoA
Retired President and
Chief Executive Officer
Federal Reserve Bank of Cleveland
Cleveland, Ohio
Elizabeth Valk LongE
Retired Executive Vice President
Time Inc.
New York, New York
Nancy Lopez RussellG
Founder
Nancy Lopez Golf Company
Palm City, Florida
Alex ShumateG
Managing Partner, North America
Squire Patton Boggs (US) LLP
Columbus, Ohio
Mark T. Smucker
President and Chief Executive Officer
The J. M. Smucker Company
Richard K. Smucker
Executive Chairman
The J. M. Smucker Company
Timothy P. Smucker
Chairman Emeritus
The J. M. Smucker Company
Dawn C. WilloughbyG
Former Executive Vice President
and Chief Operating Officer
The Clorox Company
Oakland, California
A Audit Committee Member; E Executive Compensation Committee Member; G Nominating, Governance, and Corporate Responsibility Committee Member
EXECU TIVE LEADERSHIP TEAM
Mark T. Smucker
President and Chief Executive Officer
Amy Held
Senior Vice President, Corporate
Strategy, M&A, and International
Julia L. Sabin
Vice President, Government Relations
and Corporate Sustainability
Richard K. Smucker
Executive Chairman
Mark R. Belgya
Vice Chair and Chief Financial Officer
J. Randal Day
Senior Vice President, Operations
Kevin G. Jackson
Senior Vice President, U.S. Retail Sales
and Away From Home
Joseph Stanziano
Senior Vice President and General
Manager, Coffee
Jeannette L. Knudsen
Senior Vice President, General Counsel
and Secretary
Geoff E. Tanner
Senior Vice President, Growth and
Consumer Engagement
Robert D. Ferguson
Senior Vice President, Supply Chain
David J. Lemmon
President, Pet Food and Pet Snacks
Tina R. Floyd
Senior Vice President and General
Manager, Consumer Foods
Jill R. Penrose
Senior Vice President, Human Resources
and Corporate Communications
FISCAL YEAR 2019 ANNUAL REPORT
OU R LO CATIONS
CORPO RATE H EA DQ UARTER S
Orrville, Ohio
INT ER NATIONA L OFF ICE
Markham, Ontario, Canada
DO ME STIC M ANUFACTUR ING LO CATI ONS
Bloomsburg, Pennsylvania
Buffalo, New York
Chico, California
Cincinnati, Ohio
Decatur, Alabama
Frontenac, Kansas
Grandview, Washington
Havre de Grace, Maryland
Lawrence, Kansas
Lexington, Kentucky
Longmont, Colorado
Meadville, Pennsylvania
Memphis, Tennessee
New Bethlehem, Pennsylvania
New Orleans, Louisiana (3)
Orrville, Ohio
INT ER NATIONA L M ANUFACT UR I NG LO CATI ON
Sherbrooke, Quebec, Canada
Oxnard, California
Ripon, Wisconsin
Seattle, Washington
Scottsville, Kentucky
Suffolk, Virginia
Topeka, Kansas
S HARE HO LD E R I N F ORMATIO N
CORPORATE OFFIC E
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.
ANNU AL MEETING
The annual meeting will be held at 11:00 a.m., Eastern Time,
August 14, 2019 at The Ritz-Carlton, 1515 West Third Street,
Cleveland, Ohio 44113
CORPORATE NE WS AND REP ORT S
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.
Seattle
WA
Grandview
Chico
CA
Oxnard
Sherbrooke,
Quebec, Canada
They are also available without cost to shareholders who
submit a written request to:
CO
Topeka
KA
Longmont
Frontenac
International Office
Markham, Ontario, Canada
Meadville
Ripon
WI
Lawrence
Cincinnati
Buffalo
NY
OH
Orrville
PA
MD
Bloomsburg
New Bethlehem
Havre de Grace
Lexington
KY
VA
TN
Scottsville
Suffolk
AL
Decatur
Orrville, OH
Corporate Headquarters
Memphis
LA
New Orleans
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 STATEME NT S
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.
INDEP ENDENT REGISTERE D P UBLIC
ACCOUNT ING FIRM
Ernst & Young LLP
Akron, Ohio
DIVIDE NDS
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 SER VIC ES
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 A GEN T AND R EGI STR AR
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: Carnation® is a trademark of Société des Produits
Nestlé S.A.; Dunkin’ Donuts® is a trademark of DD IP Holder,
LLC; K-Cup® is a trademark of Keurig Green Mountain, Inc;
and Rachael Ray® is a trademark of Ray Marks Co., LLC.
THE J.M. SMUCKER COMPANY
FISCAL YEAR 2019 ANNUAL REPORT
90
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THE J.M. SMUCKER COMPANYFISCAL YEAR 2019 ANNUAL REPORT One Strawberry Lane
Orrville, Ohio 44667
330-682-3000
jmsmucker.com