FISCAL YEAR 2020
LOOKING
BACK ON
A YEAR OF
SHARED
SUCCESS
As we reflect on the results that represent the continued growth of our
business in fiscal year 2020, it is important to take a moment to appreciate the
significant accomplishments that were achieved together with our employees,
our partners and our communities. These accomplishments demonstrate our
commitment to ensuring we are continuing to grow our business and the
impact we make on all constituents. Thank you to everyone who supported
our success in fiscal year 2020!
Ensured a steady
supply of food for people
and pets during the
COVID-19 pandemic
Implemented a
new, strategic executive
leadership structure
Opened Longmont, CO,
manufacturing facility
to meet Uncrustables ® demand
Introduced new
parental leave benefits
for employees
Launched culturally
relevant marketing campaigns
for 10 of our largest brands
Increased our
dividend for the 18th
consecutive year
Grew Dunkin’ ® to the
#3 brand in retail sales in
the at-home coffee category
Source: IRI Consumption Data
Drove the
Uncrustables ® brand
to double-digit
growth each quarter
Invested in the Meow Mix ® brand,
achieving the #1 position in dry cat
food household penetration
Source: IRI Panel Data
Achieved two milestone
sustainability commitments
ahead of schedule
1
FISCAL YEAR 2020 ANNUAL REPORT DEAR FELLOW
SHAREHOLDERS,
Fiscal year 2020 was an unprecedented one for many
A critical aspect of delivering value to our constituents
Be Everywhere
For fiscal year 2021, we’ve outlined the following priorities
reasons, most notably the significant impact of COVID -19
is how we execute against our long-term growth
across the world. While this crisis presented considerable
imperatives. We are pleased to share that we took
challenges, we could not be prouder of how our entire
several meaningful steps during fiscal year 2020 directly
organization rose to the occasion. From the dedicated
aligned with these imperatives:
employees who came into work each day to provide
essential food to our consumers, to the Smucker Leadership
Lead in the Best Categories
Team who focused on implementing steps across our
organization to keep employees safe to the efforts of
everyone in our Company who went out of their way to
support the communities where we live and work.
While continuing to deal with the impact of COVID -19,
we are encouraged by how we have managed through
• Maintained our leadership position in key categories
resulting in 70% of our net sales coming from categories
where we hold #1- or #2-branded positions
• Invested in the Meow Mix ® brand to vault it into the #1
spot in household penetration for the dry cat food category
• Launched innovations to support our Milk-Bone ® brand’s
these hardships to date and know we will continue to
#1 position in the dog treat category
do so together because of our strong values.
A few months prior to COVID-19 impacting our lives, we
announced a new executive leadership structure. This
change was designed to sharpen our focus on strategic
initiatives, enhance accountability for business delivery,
streamline decision-making and enable greater agility
to ensure delivery of strategic and financial priorities.
Build Brands Consumers Love
• Delivered culturally relevant marketing campaigns for
10 priority brands, generating positive momentum at retail
• Opened our new Longmont, Colorado, manufacturing
facility to support production of Smucker’s ® Uncrustables ®
frozen handheld sandwiches, which helped us achieve
double-digit growth for the brand each quarter
• Continued to invest in our e-commerce capabilities,
for our employees:
resulting in the pure-play e-commerce channel now
• Deliver our net sales plan
accounting for 5% of U.S. retail sales
• Combined our U.S. and Canada Away From Home units
into a single North American Away From Home unit to
better service our customers
• Expanded distribution of our Jif ® and 1850 ® brands into
Canada and foodservice venues throughout North America
Fiscal Year 2020 Performance
As a result of the hard work of our employees and clear
• Maintain leading margins
• Improve commercial execution
• Feed communities and fortify connections
With momentum across our strategic business areas, a
streamlined Leadership Team and passionate employees,
we are confident in our ability to realize our financial objectives
and continue to deliver value for all our constituents.
alignment against our growth imperatives, we delivered
To our employees and shareholders, we are incredibly
$7.8 billion in net sales in fiscal year 2020 and achieved
grateful for your continued support of our strategy and
several of our performance benchmarks. Financial
vision. Your support makes this a special business. Without
highlights from the past year include:
you, we would not be the Company we’ve grown to be nor
• Net sales of $7.8 billion, representing organic growth of 1%
would our future look as bright.
• Free cash flow was $985.5 million, an increase of 26%
• Adjusted earnings per share was $8.76, an increase of 6%
• Continued our long history of increasing dividends paid
to shareholders, with a 4% increase in the annual
Mark T. Smucker
President and CEO
Since the new structure was announced, each leader has
• Elevated the Dunkin’ ® brand to the #3 spot in retail sales
dividend rate
quickly embraced their new role. Tucker Marshall has
successfully transitioned into the role of Chief Financial
Officer; Geoff Tanner, Chief Marketing and Commercial
Officer, has a clear plan to optimize our commercialization
efforts; and John Brase immediately dove headfirst into
his appointment as Chief Operating Officer – just to
name a few. While they have only worked together as
a collective Leadership Team for a few months, it is clear
they share a focus on putting the Company in a position
to bring value to all our constituents.
in the at-home coffee category through a series of
innovation and marketing initiatives
• Grew net sales for our Café Bustelo ® brand 8%, aided by
incremental distribution and the brand’s first national
integrated marketing campaign
• New products introduced during the past three years
accounted for 5% of fiscal year 2020 net sales
The Year Ahead
We are proud of our commitment to continuous
improvement and passion to be better tomorrow than
we are today. And, while pleased with our performance
in fiscal year 2020, we are even more encouraged by
the opportunities ahead of us.
Richard K. Smucker
Executive Chairman
Timothy P. Smucker
Chairman Emeritus
DEAR SHAREHOLDERS,
Key Fiscal Year 2020 Results
As Chief Financial Officer, I am committed to supporting
Financial Priorities
In support of this priority, we are:
We remain dedicated to delivering on our strategic growth
• Putting in place greater financial oversight
imperatives, with an enhanced focus on operating with
for the strategic decisions being made across
financial awareness and discipline in support of our shared
the organization
the Company’s balanced and sustainable growth, which
we are in a good position to realize due to our market and
category leadership positions and our strong financial
foundation. We will always focus on delivering consistent
financial returns to our shareholders, while recognizing
the importance of supporting each of our constituents.
During my first few months, I have been prioritizing three
critical areas: (i) helping the Company navigate the impact
goal of creating value for our shareholders through:
• Consistent and Transparent Communication: We are
committed to frequent and open engagement with
investors to deepen their understanding of our Company
and financial priorities
of COVID-19; (ii) enhancing the focus on our financial
priorities and decision-making; and (iii) supporting the
• Execution of Annual and Long-Term Targets: We will
consistently deliver on our top- and bottom-line growth
continued development of our Finance organization to
guidance by setting credible targets, while upholding
deliver our strategy.
Navigating COVID-19
the highest standards of accountability
• Improved Focus on Returns: We will sharpen our focus
on maximizing returns when evaluating reinvestment in
I am proud to have worked with our Leadership Team
our brands, our products and our capabilities
to prioritize the well-being of our employees, to fund
relief activities for our communities and to produce
products for our consumers and their pets that provide
a sense of normalcy in a period of significant disruption.
The Company’s Purpose and Basic Beliefs are being
positively demonstrated, and I am very proud of what
our employees have accomplished in a time of uncertainty
and heightened need. This is particularly so of our frontline
workers who have ensured our manufacturing and
distribution facilities remain safe, open and operational.
• Continued Cost Control: We will continue to optimize
our cost structure to support both reinvestment in the
business and sustained profit improvement over time
• Balanced Capital Deployment: We will execute on a
defined capital deployment program, balancing both
the investment in the business and returning cash
to shareholders in the form of dividends and share
repurchases, while deleveraging the balance sheet
to open strategic M&A opportunities
Finance Organization
It is central to my role to ensure the Company has access to
capital, and to effectively and efficiently invest those dollars
in the pursuit of our strategy, yielding the highest and best
returns. While this is a shared responsibility across our
Leadership Team, I am committed to ensuring the Finance
organization has the resources necessary to realize this
obligation across all areas of the business.
• Strengthening reporting and developing
advanced analytical tools to further improve
decision-making
• Continuously evaluating our portfolio to ensure
prioritization of the highest-returning investments
• Building deeper partnerships between the
business units, their leadership and the
Finance organization
• Establishing a connection, and coordination,
with our new Chief Operating Officer,
John Brase, to position the Company to
deliver strong financial results across each
of our strategic business areas
I am humbled to have the opportunity to serve
as our Company’s Chief Financial Officer, and
I am confident our execution towards the
strategic growth imperatives will deliver
shareholder value over time while our values-
driven approach will continue to enable our
strategy and accomplishments.
Tucker H. Marshall
Chief Financial Officer
Net Sales
$7.8B
Adjusted EPS
$8.76
Free Cash Flow
$985.5M
Key Considerations Driving Our
Assumptions for Fiscal Year 2021
Continued double-digit growth for the
Smucker’s ® Uncrustables® brand enabled by
a full year of increased production capacity
A Coffee segment sales increase reflecting lapped
deflationary pricing and the ongoing growth of the
Dunkin’ ® and Café Bustelo ® brands
Continued strong performance from our
dog snacks and cat food brands, and
improvement from the Rachael Ray ® Nutrish ®
brand in premium dog food
F I S C A L Y E A R 2 0 2 0 A N N U A L R E P O R T
5
OUR THRIVING TOGETHER
PHILOSOPHY
Some call it corporate responsibility, others ESG
Our Thriving Together philosophy is currently
initiatives. For us, it’s just part of our values, and our
activated across four areas:
commitment is simple: Ensure we are positively
impacting each of our stakeholders.
• Sourcing Responsibly
• Supporting Employees
This means taking clear actions that support
• Strengthening Communities
our consumers, employees, supply chains, the
communities we are proud to be a part of and
the planet we all share. We believe our continued
holistic support of these constituents is not only
aligned with our business success, it is critical to our
ability to succeed.
• Positively Impacting the Environment
In fiscal year 2020, we delivered on our
Thriving Together philosophy in several
important ways:
Introduced unique measures to support employees and
communities during the COVID-19 pandemic
Formalized our animal welfare commitments
Strengthened our commitment to responsible marketing practices
Expanded existing community partnerships and introduced new
ones, including helping create the I PROMISE School’s Hometown
Hall and supporting the Akron-Canton Regional Foodbank’s expansion
Introduced major enhancements to our parental leave, including
the opportunity for birth mothers to take up to 24 weeks fully paid
Achieved our waste to landfill diversion goal and exceeded
our water intensity reduction goal ahead of schedule
We are proud of the positive impact we had on our stakeholders
in the past year and are excited by the many opportunities we
have to continue realizing our commitment to thrive together
in fiscal year 2021.
F I S C A L Y E A R 2 0 2 0 A N N U A L R E P O R T
7
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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, 2020
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 checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
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, 2019, was $11,446,124,922.
As of June 12, 2020, 114,043,184 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 19, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page No.
Item 1.
Business.
PART I
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
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
2
7
16
17
17
17
18
19
20
34
36
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78
78
79
79
79
79
79
80
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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 approximately
6 percent of consolidated net sales for 2020. 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 acquired the equity of Ainsworth Pet Nutrition, LLC (“Ainsworth”) in an all-cash transaction, which
was funded by debt and valued at $1.9 billion. Ainsworth was a leading producer, distributor, and marketer of premium pet
food and pet snacks, predominantly within the U.S. For additional 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 additional
information, refer to Note 4: Divestiture.
We have four reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, U.S. Retail Consumer Foods, and International
and Away From Home. The U.S. retail market segments in total comprised 87 percent of 2020 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, 2020, are coffee, dog food, cat food, pet snacks, peanut butter,
fruit spreads, frozen handheld products, shortening and oils, portion control products, juices and beverages, and baking mixes
and ingredients. Product sales information for the years 2020, 2019, and 2018 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, discount and dollar stores, food wholesalers, online retailers, pet specialty stores, natural foods stores
and distributors, drug stores, 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., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and
universities, and convenience stores).
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
purchase, see “Commodities Overview” within Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
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.
2
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, 2020, are listed below.
Primary Reportable Segment
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Major Trademark
Rachael Ray® Nutrish®, Meow Mix®, Milk-Bone®, Kibbles ‘n Bits®, 9Lives®,
Natural Balance®, Pup-Peroni®, and Nature’s Recipe®
Folgers®, Dunkin’ Donuts®, and Café Bustelo®
Jif®,, Smucker’s®, Uncrustables®, and Crisco®
Folgers and Smucker’s
Dunkin’TM and Dunkin’ Donuts are trademarks 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. All references to Dunkin’ in this Annual Report on Form 10-K are deemed to include the Dunkin’ and
Dunkin’ Donuts trademarks. The Dunkin’ Licenses do not pertain to Dunkin’ coffee or other products for sale in Dunkin’
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 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®,”
“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 Jif Color Banner design, the Folgers Mountain Sunrise design, and the Smucker’s Strawberry, 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 typically
had a significant impact on our results for a fiscal year. Additionally, the Back to School period and the Spring Holiday
season are important promotional periods. However, as a result of the U.S. baking business divestiture during 2019, the U.S.
Retail Consumer Foods segment has experienced less seasonality. Additionally, the U.S. Retail Pet Foods segment, which
grew during 2019 as a result of the Ainsworth acquisition, 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, shortening and oils, 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 experience significant seasonality. The divestiture of the U.S. baking business and the acquisition of
Ainsworth during 2019 have further reduced the seasonality of our overall working capital requirements.
Customers: Sales to Walmart Inc. and subsidiaries amounted to 32 percent, 32 percent, and 31 percent of net sales in 2020,
2019, and 2018, respectively. These sales are primarily included in the U.S. retail market segments. No other customer
exceeded 10 percent of net sales during 2020, 2019, or 2018.
During 2020, 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, ice cream toppings, and shortening 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 16.4 dollar average market share during the 52 weeks ended
April 19, 2020, as compared to a 16.6 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, 2020, are listed below.
Our Primary Products
Our Primary Brands
Competing Brands
Competitors
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
Nestlé Purina PetCare Company
Pedigree, Iams, and Sheba
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
U.S. Retail Coffee
Mainstream roast and ground coffee
Folgers (A) and Café Bustelo
Single serve coffee - K-Cup®
Dunkin’, Folgers, Café Bustelo,
and 1850TM
Premium coffee
Dunkin’ and 1850
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
Maxwell House and Yuban
Private Label Brands
The Kraft Heinz Company
Various
McCafe
Cafe La Llave
Green Mountain Coffee (A) and McCafe Keurig Dr. Pepper
Keurig Dr. Pepper
F. Gaviña & Sons, Inc.
Starbucks
Private Label Brands
Nestlé S.A.
Various
Maxwell House and Gevalia
Starbucks (A) and Seattle’s Best Coffee
Peet’s Coffee & Tea
Private Label Brands
The Kraft Heinz Company
Nestlé S.A.
JDE Peet’s BV
Various
Eight O’Clock
Gevalia
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
Smucker’s (A)
Skippy
Nutella
Peter Pan
Private Label Brands
Welch’s
Bonne Maman
Frozen sandwiches and snacks
Smucker’s Uncrustables (A)
Skippy P.B. & Jelly Minis
Shortening and oils
Crisco (B)
Hot Pockets
Totino's
Private Label Brands (B)
Wesson
International and Away From Home
Foodservice hot beverage
Folgers, 1850, and Café Bustelo
Starbucks
Foodservice portion control
Smucker’s and Jif
Canada coffee
Folgers
Private Label Brands
Nescafé
Private Label Brands
Heinz, Welch’s and Private Label
Brands
Tim Hortons (A)
Maxwell House
Private Label Brands
Hormel Foods Corporation
Ferrero SpA
Conagra Brands, Inc.
Various
Welch Foods Inc.
Andros Foods USA, Inc.
Hormel Foods Corporation
Nestlé S.A.
General Mills, Inc.
Various
Richardson International Ltd.
Nestlé S.A.
Various
Société des Produits Nestlé S.A.
Various
The Kraft Heinz Company
Restaurant Brands International Inc.
The Kraft Heinz Company
Various
Canada flour
Robin Hood® (A) and Five Roses®
Private Label Brands
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: We consider it to be our responsibility as a good corporate citizen to be compliant with
environmental regulations and focus on environmental sustainability. As such, we have public goals related to waste
diversion, water usage intensity reduction, greenhouse gas emissions intensity reduction, and packaging recyclability. In
addition, 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 2021.
Employees: At April 30, 2020, we had approximately 7,300 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 two
contracts expiring in 2021, representing 2 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, 2020, 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
John P. Brase
Amy C. Held
Jeannette L. Knudsen
Tucker H. Marshall
Jill R. Penrose
Geoff E. Tanner
Age
72
50
59
52
46
50
44
47
46
Position
Executive Chairman (A)
President and Chief Executive Officer (B)
Vice Chair (C)
Years
with
Company
47
22
35
— Chief Operating Officer (D)
7
17
8
16
17
Chief Strategy and International Officer (E)
Chief Legal and Compliance Officer and Secretary (F)
Chief Financial Officer (G)
Chief People and Administrative Officer (H)
Chief Marketing and Commercial Officer (I)
Served as
an Officer
Since
1974
2001
1997
2020
2018
2009
2020
2014
2019
(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 2020, having served as Vice Chair and Chief Financial Officer
since May 2016. Prior to that time, he served as Senior Vice President and Chief Financial Officer since October 2009.
(D) Mr. Brase was elected to his present position in April 2020, having previously served at The Procter & Gamble Company
(“P&G”) for 30 years. He was the Vice President and General Manager of P&G’s North American Family Care business
from April 2016 through March 2020 and, prior to that time, he served as Vice President and General Manager, Global
Family Care, Upstream Innovation since January 2015.
(E) Ms. Held was elected to her present position in November 2019, having served as Senior Vice President, Corporate
Strategy, M&A, and International since July 2018. Prior to that time, she served as Senior Vice President, Strategy and
M&A since March 2018, Vice President, Corporate Strategy and Development since May 2016, and Director, Corporate
Strategy and Development since February 2013.
(F) Ms. Knudsen was elected to her present position in November 2019, having served as Senior Vice President, General
Counsel and Secretary since May 2016. Prior to that time, she served as Vice President, General Counsel and Corporate
Secretary since August 2010.
(G) Mr. Marshall was elected to his present position in May 2020, having served as Senior Vice President and Deputy Chief
Financial Officer since November 2019. Prior to that time, he served as Vice President, Finance since May 2016 and
Vice President, Financial Planning and Analysis since June 2014.
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(H) Ms. Penrose was elected to her present position in November 2019, having served as Senior Vice President, Human
Resources and Corporate Communications since May 2016. Prior to that time, she served as Vice President, Human
Resources since June 2014.
(I) Mr. Tanner was elected to his present position in November 2019, having served as Senior Vice President, Growth and
Consumer Engagement since May 2016. Prior to that time, he served as Vice President, Growth and Innovation since
January 2016, and Vice President, Pet Food and Snacks Marketing since July 2015.
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 (investors.jmsmucker.com/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.
The outbreak of the novel coronavirus (“COVID-19”) could negatively impact our business and results of operations.
The continued spread of COVID-19 throughout the United States and the international community has had, and could
continue to have, a negative impact on financial markets, economic conditions, and portions of our business and industry.
COVID-19 could negatively impact our business and results of operations in a number of ways, including, but not limited to,
the following:
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a shutdown or slowdown of one or more of our manufacturing facilities due to illness could significantly disrupt our
production capabilities, particularly with respect to our coffee production, substantially all of which takes place in
New Orleans, Louisiana;
a slowdown or stoppage in our supply chain could result from government restrictions or labor shortages due to
illness or if our suppliers, vendors, distributors, or third-party manufacturers fail to meet their obligations to us or
experience disruptions in their ability to do so;
a strain on our supply chain could result from increased consumer demand at our retail and e-commerce customers;
an increase in commodity and other input costs could result from market volatility, particularly with respect to
animal protein meals and fats, the supply chain for which has been significantly disrupted by COVID-19;
a significant portion of our workforce, including our management team, could become unable to work as a result of
illness or government restrictions, or the attention of our management team could be diverted if any key employees
become ill from COVID-19 and are unable to work;
an impairment in the carrying value of goodwill or intangible assets or a change in the useful life of definite-lived
intangible assets could occur if there are sustained changes in consumer purchasing behaviors, government
restrictions, financial results, or a deterioration of macroeconomic conditions;
a decrease in demand for away from home establishments, resulting from government restrictions and social
distancing measures, has adversely affected, and may continue to adversely affect, our away from home operations;
an increase in working capital needs could occur, caused by an increase in days sales outstanding or an extension of
payment terms by our customers or a reduction of payment terms by our suppliers resulting from increased financial
pressures;
a change in demand resulting from restrictions on social interactions could affect customers’ and consumers’ plans
to purchase or methods of purchasing our products;
a change in demand for or availability of our products could result from retailers, distributors, or carriers modifying
their restocking, fulfillment, or shipping practices;
a shift in consumer spending as a result of the economic downturn could result in consumers moving to private label
or competitive products or our lower-priced products;
a change in trade promotions and marketing activities could occur in response to changes in consumer viewing and
shopping habits resulting from the cancellation of major events, travel restrictions, and changes in in-store shopping
•
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practices;
a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties;
an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future, could
affect our financial condition or our ability to fund operations or future investment opportunities; and
an increase in regulatory restrictions or continued market volatility could hinder our ability to implement price
increases resulting from commodity or other input cost increases or to execute strategic business activities, including
acquisitions and divestitures.
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.
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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.
toward our lower-margin offerings. As a result, decreased demand for our products may adversely affect our results of
operations.
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, pandemic illness (such as the COVID-19 outbreak), foreign currency fluctuations, investor
speculation, trade agreements, political unrest, consumer demand, and changes in governmental agricultural programs. In
particular, the supply chain for animal protein meals and fats has been significantly disrupted by the COVID-19 pandemic,
and therefore, the price for these commodities has increased and may continue to increase due to such disruptions. We also
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.
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 (such as the COVID-19 outbreak), or other
causes, could significantly impair our ability to operate our business. In particular, substantially all of our coffee production
takes place in New Orleans, Louisiana, and is subject to risks associated with hurricane and other weather-related events, and
some of our production facilities are located in places where tornadoes or wildfires can frequently occur, such as Alabama,
Kansas, and California. In addition, we are actively monitoring COVID-19 and its impact on our supply chain and
consolidated results of operations, which could be negatively impacted in a number of ways, as previously noted. 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 efforts to manage commodity, foreign currency exchange, and other price volatility through derivative instruments
could adversely affect our results of operations and financial condition.
Our business could be harmed by strikes or work stoppages.
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.
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
As of April 30, 2020, 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 two contracts expiring in 2021,
representing 2 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, natural disasters, or a pandemic illness (such as COVID-19), 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
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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 2020. These sales are primarily included in the
U.S. retail market segments. Trade receivables at April 30, 2020, included amounts due from Walmart Inc. and subsidiaries
of $131.9 million, or 24 percent of the total trade receivables balance. During 2020, 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
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.
The success of our business depends substantially on consumer perceptions of our brands.
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 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’ or Rachael Ray brands could adversely affect the success of our exclusive licensing agreements with the owners of
these brands.
We must leverage our brand value to compete against private label products.
In nearly all of our product categories, we compete against branded products as well as private label products. Our products
must provide higher value and/or quality to our consumers than alternatives, particularly during periods of economic
uncertainty. Consumers may not buy our products if relative differences in value and/or quality between our products and
private label products change in favor of competitors’ products or if consumers perceive this type of change. If consumers
prefer private label products, which are typically sold at lower prices, then we could lose category share or sales volumes or
shift our product mix to lower margin offerings, which could have a material effect on our business and consolidated
financial position and on the consolidated results of our operations and profitability.
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 to 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
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.
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We may not realize the benefits we expect from our cost reduction and other cash management initiatives.
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. Furthermore, as a
result of COVID-19, we may experience an increase in the cost of or the difficulty to obtain debt or equity financing, or to
refinance our debt in the future, which could also affect our financial condition or our ability to fund operations or future
investment opportunities.
Our fixed- and variable-rate debt use the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing interest
rates, and we enter into interest rate swaps from time to time that contain a variable element based on LIBOR. The Financial
Conduct Authority in the United Kingdom has stated that it will not require banks to submit LIBOR beyond 2021. Once
LIBOR ceases to be available, we may need to amend affected agreements, and we cannot predict what alternative index will
be negotiated with our counterparties. Although we do not anticipate a significant impact to our financial position as a result
of this transition given our current mix of fixed- and variable-rate debt, our interest expense could increase, and our available
cash flow for general corporate requirements may be adversely affected.
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, 2020, we had approximately $5.6 billion of short-term borrowings and long-term debt, partially as a result of
our borrowings in 2019 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;
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, 2020, the carrying value of goodwill and other intangible assets totaled $12.7 billion, compared to total assets of
$17.0 billion and total shareholders’ equity of $8.2 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, 2020, goodwill and indefinite-lived intangible assets totaled $6.3 billion and 2.9 billion, respectively. The
carrying values of the goodwill and indefinite-lived intangible assets were $2.4 billion and $1.4 billion, respectively, within
the U.S. Retail Pet Foods segment, and $2.1 billion and $1.2 billion, respectively, within the U.S. Retail Coffee segment,
which represent approximately 75 percent of the total goodwill and indefinite-lived intangible assets as of April 30, 2020.
Furthermore, the carrying values of the goodwill and indefinite-lived intangible assets within the U.S. Retail Pet Foods
segment 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 $465.0
million of impairment charges related to the goodwill and indefinite-lived intangible assets acquired as part of the Big Heart
Pet Brands (“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 assets within the U.S. Retail Pet Foods
segment are more likely than not impaired as of April 30, 2020. 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 macroeconomic conditions, or a
change to other assumptions could result in additional impairment losses in the future, which could be significant. As of
April 30, 2020, 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 such instances, the estimated fair value exceeded the
carrying value by greater than 10 percent.
Furthermore, we continue to evaluate the potential impact of COVID-19 on the fair value of our goodwill and indefinite-lived
intangible assets. While we concluded there were no indicators of impairment as of April 30, 2020, any significant sustained
13
14
adverse change in consumer purchasing behaviors, government restrictions, financial results, or macroeconomic conditions
could result in future impairment, specifically as it relates to the Away From Home reporting unit, which has experienced a
significant decline in demand as a result of COVID-19. For additional 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, pricing, 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
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.
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, and the importance of such networks and systems has increased due to many of our employees working
remotely as a result of the COVID-19 pandemic. 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.
15
16
Item 2.
Properties.
PART II
The table below lists all of our manufacturing and processing facilities at April 30, 2020. 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
two 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
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 (four
facilities) (A)
Orrville, Ohio
Oxnard, California
Ripon, Wisconsin
Scottsville, Kentucky
Seattle, Washington (A)
Sherbrooke, Quebec
Suffolk, Virginia
Topeka, Kansas
Wet dog and cat food and dry dog and cat food
Dog snacks
Fruit and vegetable juices and beverages and
grain products
Shortening and oils
Dry dog and cat food
Dry dog and cat food
Fruit
Fruit and vegetable juices and beverages
Dry dog food
Peanut butter
Frozen sandwiches
Dry dog and cat food
Peanut butter and fruit spreads
Peanut butter and combination peanut butter and
jelly products
Coffee
U.S. Retail Pet Foods
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
U.S. Retail Consumer Foods
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
U.S. Retail Coffee
Fruit spreads, toppings, and syrups
Fruit
Fruit spreads, toppings, syrups, and condiments
Frozen sandwiches
Nut mix products
Canned milk
Liquid coffee
Dry dog and cat food and dog and cat snacks
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
U.S. Retail Consumer Foods
International and Away From Home
International and Away From Home
U.S. Retail Pet Foods
(A) 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 16: Contingencies.
Item 4.
Mine Safety Disclosures.
Not applicable.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common shares are listed on the New York Stock Exchange – ticker symbol SJM. There were approximately 304,821
shareholders of record as of June 12, 2020, of which approximately 35,966 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 2020, 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, 2020 - February 29, 2020
March 1, 2020 - March 31, 2020
April 1, 2020 - April 30, 2020
Total
Total number
of shares
purchased
Average
price paid
per share
150 $ 108.85
102.04
432
103
116.67
685 $ 105.73
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, 2020, 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, 2020, 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, 2015.
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
4/15
4/16
4/17
4/18
4/19
4/20
The J. M. Smucker Company
S&P Packaged Foods & Meats
S&P 500
2015
2016
2017
2018
2019
2020
April 30,
The J. M. Smucker Company
S&P Packaged Foods & Meats
S&P 500
$ 100.00 $ 112.05 $ 114.20 $ 105.57 $ 116.96 $ 113.04
122.62
100.00
154.74
100.00
123.26
119.34
116.53
101.21
116.68
153.41
105.60
135.17
17
18
Copyright © 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
Item 6.
Selected Financial Data.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the five years in the period ended April 30, 2020. 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:
2020
Year Ended April 30,
2018
2017
2019
2016
$ 7,801.0
$ 3,002.0
$ 7,838.0
$ 2,915.7
$ 7,357.1
$ 2,836.1
$ 7,392.3
$ 2,835.3
$ 7,811.2
$ 2,967.8
38.5 %
37.2 %
38.5 %
38.4 %
38.0 %
$ 1,223.1
$ 928.6
$ 1,044.0
$ 1,042.6
$ 1,146.3
15.7 %
11.8 %
14.2 %
14.1 %
14.7 %
$ 779.5
$ 514.4
$ 1,338.6
$ 592.3
$ 688.7
$ 391.1
16,970.4
5,621.3
8,190.9
$ 1,254.8
269.3
985.5
396.8
4.2
1,714.8
$ 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
$ 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
$ 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
$ 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
114.0
Weighted-average shares outstanding
Weighted-average shares outstanding – assuming dilution 114.0
$ 3.52
Dividends declared per common share
113.7
113.7
$ 3.40
113.6
113.6
$ 3.12
116.0
116.1
$ 3.00
119.4
119.5
$ 2.68
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:
$ 6.84
6.84
$ 4.52
4.52
$ 11.79
11.78
$ 5.11
5.10
$ 5.77
5.76
$ 2,982.4
$ 2,969.9
$ 2,802.7
$ 2,868.2
$ 2,968.0
38.2 %
37.9 %
38.1 %
38.8 %
38.0 %
$ 1,508.7
$ 1,492.3
$ 1,439.7
$ 1,492.9
$ 1,490.8
19.3 %
19.0 %
19.6 %
20.2 %
19.1 %
Adjusted income
Adjusted earnings per share – assuming dilution
$ 999.1
8.76
$ 942.7
8.29
$ 904.6
7.96
$ 895.9
7.72
$ 931.3
7.79
(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 generally accepted
accounting principles (“GAAP”) financial measure.
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 away from home dining locations, 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 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 Pet Foods, U.S. Retail Coffee, U.S. Retail Consumer Foods, and International
and Away From Home. The U.S. retail market segments in total comprised 87 percent of net sales in 2020 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, discount and dollar stores, food wholesalers, online retailers, pet specialty stores, natural foods stores and
distributors, drug stores, 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., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and
universities, and convenience stores).
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 123 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 growth objectives include increasing net sales by 2 to 3 percent and operating income excluding non-GAAP
adjustments (“adjusted operating income”) by 5 percent on average over the long term. Related to income per diluted share
excluding non-GAAP adjustments (“adjusted earnings per share”), our strategic growth objective is to achieve an average
increase of 8 percent over the long term. 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, and unallocated
gains and losses on commodity and foreign currency exchange derivatives. Refer to “Non-GAAP Financial Measures” in this
discussion and analysis for additional information. Due to the unknown and potentially prolonged impact of COVID-19, we
may experience difficulties or be delayed in achieving our long-term strategies; however, we continue to evaluate the effects
from COVID-19 on our long-term growth objectives.
Net sales has increased at a compound annual growth rate of 7 percent over the past five years, while adjusted operating
income and adjusted earnings per share have increased at a rate of 9 percent and 14 percent, respectively, over the same
period. These increases were primarily driven by the acquisitions of Big Heart in 2015 and Ainsworth in 2019. Net cash
provided by operating activities has increased at a compound annual growth rate of 11 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 deployment strategy also includes a significant focus on debt
repayment.
On May 14, 2018, we acquired the equity of Ainsworth in an all-cash transaction, which was funded by debt and valued at
$1.9 billion. Ainsworth was a leading producer, distributor, and marketer of premium pet food and pet snacks, predominantly
within the U.S. As anticipated, we fully realized approximately $55.0 of annual cost synergies related to this acquisition by
the end of 2020.
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20
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 included a working capital adjustment. During 2019, we recognized a pre-tax gain of $27.7 related to this transaction,
which was included in other operating expense (income) – net within the Statement of Consolidated Income.
COVID-19
The continued spread of COVID-19 throughout the United States and the international community has had, and could
continue to have, a negative impact on financial markets, economic conditions, and portions of our business and industry.
We are committed to supporting our employees and communities, while ensuring people and pets have access to a steady
supply of food through the following initiatives:
•
•
•
•
•
•
Financial assistance provided to employees in the form of a $1,500 hardship award to front-line employees, up to
12 weeks of full pay and benefits continuation for employees unable to perform their roles, 14 days of paid sick
leave to individuals with and/or caring for family members with COVID-19, and an assistance fund seeded with
$100,000 to support employees significantly impacted;
100 percent payment of COVID-19 testing for employees and all virtual health screenings conducted by our
insurance provider;
Reinforcement of mental health resources available to our employees;
Implementation of appropriate physical distancing guidelines and extensive additional sanitation measures and
temperature screenings at all of our locations to prevent the spread of COVID-19 and keep employees safe;
Food and monetary donations to organizations including the Red Cross®, Feeding America®, United Way®, Rescue
Bank® and the Akron-Canton Regional Foodbank; and
100 percent match of employee donations to more than 20 local and national charities.
We are working closely with our suppliers and customers and have been proactive in taking additional actions to ensure
business continuity, maximize product availability, and minimize potential disruptions across our supply chain and
operations. We have increased production at all of our facilities and expanded the availability of appointments at distribution
centers. All of our production operations remain open and none have experienced significant disruptions or labor reductions
related to COVID-19. Furthermore, we have successfully implemented measures to allocate order volumes to ensure a
consistent supply across our retail partners during this high period of demand.
During the fourth quarter of 2020, we experienced an increase in orders across our U.S. and international retail businesses, in
response to the increased consumer demand for our products related to “stock up” shopping and increased at-home
consumption. This benefit was partially offset by the incremental expenses incurred to support the previously mentioned
initiatives, which totaled approximately $13.0. The increase in consumer demand may partially reverse in the coming months
as consumer purchasing behavior may change as a result of the length and severity of the pandemic, duration of physical
distancing requirements, stay-at-home orders, and macroeconomic implications. In addition, if there is a second surge of the
virus, we may experience another temporary increase in orders. However, at the end of 2020, consumer demand and customer
orders remain elevated compared to historical seasonal comparisons. We have also experienced a decline in products sold in
the away from home channels as a result of COVID-19, which has negatively impacted our net sales in our International and
Away From Home reportable segment and we expect to continue to adversely affect our net sales while government
restrictions and physical distancing measures are in place. We will continue to evaluate the nature and extent to which
COVID-19 will impact our business, consolidated results of operations, financial condition, and liquidity.
Results of Operations
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years
ended April 30, 2020 and 2019. For the comparisons of the years ended April 30, 2019 and 2018, see the Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2019 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,
2020
$ 7,801.0
$ 3,002.0
2019
$ 7,838.0
$ 2,915.7
38.5 %
37.2 %
$ 1,223.1
$ 928.6
15.7 %
11.8 %
$ 779.5
$
6.84
$ 2,982.4
$ 514.4
$
4.52
$ 2,969.9
38.2 %
37.9 %
$ 1,508.7
$ 1,492.3
19.3 %
19.0 %
$ 999.1
8.76
$
$ 942.7
8.29
$
% Increase
(Decrease)
— %
3
32
52
51
—
1
6
6
(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
Year Ended April 30,
2020
2019
Increase
(Decrease)
$ 7,801.0 $ 7,838.0 $
(25.4)
—
6.8
—
(105.9)
—
(37.0)
(25.4)
105.9
6.8
50.3
%
— %
—
1
—
1 %
Net sales excluding acquisition, divestiture, and foreign currency exchange (A)
$ 7,782.4 $ 7,732.1 $
Amounts may not add due to rounding.
(A) Net sales excluding acquisition, divestiture, and foreign currency exchange is a non-GAAP financial 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 2020 decreased $37.0, reflecting $105.9 of noncomparable net sales in the prior year related to the U.S. baking
business, partially offset by incremental net sales in the current year of $25.4 related to the Ainsworth acquisition. Net sales
excluding acquisition, divestiture, and foreign currency exchange increased $50.3, or 1 percent. Favorable volume/mix
contributed 2 percentage points to net sales, primarily driven by gains for the Smucker’s, Dunkin’, Milk-Bone, and Meow Mix
brands, reflecting approximately $185.0 of incremental net sales resulting from increased consumer demand related to the
COVID-19 pandemic. These gains were partially offset by declines for private label dog food and the Natural Balance brand.
Lower net price realization impacted net sales by 1 percentage point, primarily due to lower net pricing for coffee and peanut
butter.
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22
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,
2020
38.5 % 37.2 %
2019
3.9 %
2.5
3.2
3.6
5.8
3.9 %
3.0
3.2
3.3
5.9
18.9 % 19.2 %
3.0
—
0.7
0.2
—
3.1
1.2
1.4
0.8
(0.4)
15.7 % 11.8 %
Gross profit increased $86.3, or 3 percent, in 2020, primarily driven by a favorable net impact of lower prices and lower
costs, favorable volume/mix, and the noncomparable benefit of Ainsworth, partially offset by the noncomparable impact
related to the U.S. baking business divestiture. The favorable net impact of price and cost was mostly driven by a favorable
change in the impact of derivative gains and losses.
Operating income increased $294.5, or 32 percent, primarily due to the $152.7 decrease in intangible asset impairment
charges, a $47.6 decrease in special project costs, a $34.3 decrease in selling, distribution, and administrative (“SD&A”)
expenses, and the increase in gross profit, partially offset by the noncomparable impact of the $27.7 pre-tax gain related to
the sale of the U.S. baking business in the prior year. During 2020, we recognized a noncash impairment charge of $52.4
associated with the Natural Balance brand within the U.S. Retail Pet Foods segment. For additional information on this
charge, refer to “Critical Accounting Estimates and Policies” in this discussion and analysis.
Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, integration
and restructuring costs, and unallocated gains and losses on commodity and foreign currency exchange derivatives. Refer to
“Non-GAAP Financial Measures” in this discussion and analysis for additional information. Gross profit excluding non-
GAAP adjustments (“adjusted gross profit”) was comparable to the prior year, further reflecting an unfavorable change
related to the exclusion of unallocated derivative gains and losses, as compared to GAAP gross profit. Adjusted operating
income increased $16.4, or 1 percent, as compared to the prior year, further reflecting the exclusion of impairment charges
and special project costs, as compared to GAAP operating income.
Interest Expense
Net interest expense decreased $18.7, or 9 percent, in 2020, primarily as a result of reduced debt, as compared to the prior
year. For additional information, see “Capital Resources” in this discussion and analysis.
Income Taxes
Income taxes increased $60.0, or 32 percent, in 2020, as compared to the prior year. The effective tax rate of 24.1 percent for
2020 varied from the U.S. statutory tax rate of 21.0 percent primarily due to the impact of state income taxes. The effective
tax rate of 26.7 percent for 2019 was also unfavorably impacted by the 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. We anticipate a full-year effective tax rate for 2021 to be
approximately 24.0 percent. For additional information, refer to Note 14: Income Taxes.
Integration Activities
As of April 30, 2020, all integration activities related to the acquisition of Ainsworth were considered complete. We have
incurred total cumulative integration costs of $48.6, of which $16.5 was incurred in 2020. The majority of these costs were
cash charges. For additional 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 2020 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 particular, the supply chain for animal protein meals and fats has
been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has increased and
may continue to increase due to such disruptions. Furthermore, the price of peanuts has been impacted by the recent decrease
in crop supply.
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 2020 were lower than in 2019, primarily
due to lower costs for green coffee and peanuts.
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24
Segment Results
We have four reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, U.S. Retail Consumer Foods, and International
and Away From Home. The U.S. Retail Pet Foods segment primarily includes domestic sales of Rachael Ray Nutrish, Meow
Mix, Milk-Bone, Kibbles ’n Bits, 9Lives, Natural Balance, Nature’s Recipe, and Pup-Peroni branded products; the U.S. Retail
Coffee segment primarily includes the domestic sales of Folgers, Dunkin’, and Café Bustelo branded coffee; and the U.S.
Retail Consumer Foods segment primarily includes domestic sales of Smucker’s, Jif, and Crisco 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., health care operators, restaurants, lodging, hospitality, offices,
K-12, colleges and universities, and convenience stores).
Net sales:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Segment profit:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Segment profit margin:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Year Ended April 30,
2020
2019
% Increase
(Decrease)
$ 2,869.5
2,149.5
1,731.7
1,050.3
$ 552.7
691.0
389.7
173.4
$ 2,879.5
2,122.3
1,761.5
1,074.7
$ 503.4
676.3
406.1
198.5
— %
1
(2)
(2)
10 %
2
(4)
(13)
19.3 %
32.1
22.5
16.5
17.5 %
31.9
23.1
18.5
U.S. Retail Pet Foods
The U.S. Retail Pet Foods segment net sales decreased $10.0 in 2020, including the impact of two weeks of incremental
Ainsworth sales in the current year. Excluding the incremental Ainsworth business, net sales decreased $35.4, reflecting a
$59.8 decline related to private label products. Volume/mix decreased net sales by 2 percentage points, primarily driven by
declines for private label dog food and the Natural Balance brand, partially offset by gains for the Milk-Bone and Meow Mix
brands, which is reflective of the incremental net sales from stock-up purchasing related to the COVID-19 pandemic. Net
price realization contributed 1 percentage point, primarily related to the Meow Mix and Kibbles ’n Bits brands, partially offset
by declines for the Nutrish brand. The higher net pricing is reflective of list price increases across most brands implemented
during the second half of the prior year, partially offset by increased trade spend. Segment profit increased $49.3, reflecting a
$10.9 unfavorable fair value purchase accounting adjustment in the prior year and the benefit from the incremental Ainsworth
sales. Profit improvement was also driven by synergy realization, reduced marketing expense, higher net pricing, and a
recovery from a legal settlement related to a prior year supplier issue, partially offset by an increase in SD&A expenses and
higher input costs.
U.S. Retail Coffee
The U.S. Retail Coffee segment net sales increased $27.2 in 2020, reflecting favorable volume/mix, partially offset by lower
net price realization. The favorable volume/mix, which increased net sales by 5 percentage points, was driven by the Dunkin’,
Folgers, and Café Bustelo brands, reflecting the benefit of incremental net sales resulting from increased at-home coffee
consumption related to the COVID-19 pandemic. Lower net pricing, which reduced net sales by 4 percentage points,
reflected promotional activity across all brands, mostly supported by lower green coffee costs. Segment profit increased
$14.7, primarily due to favorable volume/mix and decreased marketing expense, partially offset by the net unfavorable
impact of lower net pricing and lower green coffee costs and an increase in SD&A expenses.
U.S. Retail Consumer Foods
The U.S. Retail Consumer Foods segment net sales decreased $29.8 in 2020, driven by a $102.2 noncomparable impact of the
U.S. baking business. Excluding the noncomparable impact of the divested business, net sales increased 4 percent. Favorable
volume/mix contributed 7 percentage points to net sales, primarily related to growth for the Smucker’s and Jif brands,
reflecting the benefit of incremental net sales resulting from increased consumer demand related to the COVID-19 pandemic
and the associated stay-at-home orders. Lower net price realization reduced net sales by 2 percentage points, primarily driven
by the list price decrease on the Jif brand, partially offset by decreased trade spend. Segment profit decreased $16.4, primarily
reflecting $44.3 of segment profit in the prior year related to the divested business, of which $27.7 represented the pre-tax
gain related to the sale. Excluding the impact of the divestiture, segment profit increased 8 percent, driven primarily by the
favorable volume/mix and decreased marketing expense, partially offset by the unfavorable net impact of lower pricing and
lower input costs, as well as a write-off of equipment related to the discontinuation of Jif Power Ups.
International and Away From Home
The International and Away From Home segment net sales decreased $24.4 in 2020, including a noncomparable impact of
$3.7 of net sales in the prior year related to the divested U.S. baking business. Unfavorable volume/mix reduced net sales by
1 percentage point, primarily driven by declines for the Folgers brand and increased shipments in the prior year related to the
closing of facilities in Mexico and transition to a distributor export model. These declines were partially offset by gains for
the Smucker’s brand. Lower net price realization reduced net sales by 1 percentage point, primarily related to the Folgers
brand. Foreign currency exchange had a $6.8 unfavorable impact on net sales. Segment profit decreased $25.1, primarily
reflecting the unfavorable volume/mix, lower pricing, and higher cost.
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 increased to $391.1 at April 30, 2020, compared to
$101.3 at April 30, 2019.
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,
2019
2020
$ 1,254.8 $ 1,141.2
(271.5) (1,924.2)
699.0
(688.7)
$ 1,254.8 $ 1,141.2
(359.8)
$ 985.5 $ 781.4
(269.3)
(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 $113.6 increase in cash provided by operating activities in 2020 was primarily driven by higher net income adjusted for
noncash items in the current year. The cash required to fund working capital decreased compared to the prior year, excluding
the impact of the realization of a $30.0 income tax refund in 2019. The decrease in working capital requirements was
primarily driven by lower payments for accounts payable items driven by working capital initiatives, inclusive of a supplier
financing program entered into during 2020. Offsetting these decreases is a $239.8 settlement of interest rate contracts during
2020. For additional information, refer to Note 10: Derivative Financial Instruments.
Cash used for investing activities in 2020 primarily consisted of $269.3 in capital expenditures. 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 financing activities in 2020 consisted primarily of long-term debt repayments of $900.0, dividend payments of
$396.8, and a $185.8 net reduction in short-term borrowings, partially offset by $798.2 in long-term debt proceeds. 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.
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26
Supplier Financing Program
As part of ongoing efforts to maximize working capital, we work with our suppliers to optimize our terms and conditions,
which includes the extension of payment terms. Payment terms with our suppliers, which we deem to be commercially
reasonable, generally range from 0 to 120 days. During 2020, we entered into an agreement with a third-party administrator
to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating
suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial
institution. Participating suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and
obligations to our suppliers are not impacted. We have no economic interest in a supplier’s decision to enter into these
agreements. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our
suppliers’ decisions to sell amounts under these arrangements. As of April 30, 2020, $157.5 of our outstanding payment
obligations were elected and sold to a financial institution by participating suppliers. During 2020, we paid $31.8 to a
financial institution for payment obligations that were settled through the supplier financing program.
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 were settled and
paid during the second half of 2019. While we cannot predict with certainty the ultimate results of these proceedings or
potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we
have determined are probable and reasonably estimable at April 30, 2020. 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 will 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, 2020, 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 16: 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,
2020
2019
$
— $
798.5
426.0
248.0
5,373.3
4,686.3
$ 5,621.3 $ 5,910.8
8,190.9
7,970.5
$ 13,812.2 $ 13,881.3
date, including $100.0 in 2020. The interest rate on the Term Loan at April 30, 2020, was 1.21 percent. In November 2019,
we entered into an amendment to the Term Loan that decreased the applicable margins on LIBOR, based on our long-term
unsecured debt rating. This amendment did not have a material impact on our consolidated financial statements.
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, 2020, we
had $248.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a
weighted-average interest rate of 0.40 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 2020, we did not repurchase any common shares under a repurchase plan authorized by the Board. At April 30, 2020,
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.
The following table presents certain cash requirements related to 2021 investing and financing activities based on our current
expectations. Although no principal payments are required on our debt obligations in 2021, we may utilize a portion of our
cash for debt repayment. Additionally, in 2022, a portion of our Senior Notes will mature, and $1.9 billion in principal
payments will be required that year.
Dividend payments – based on current rates and common shares outstanding
Capital expenditures
Interest payments
Projection
Year Ending
April 30, 2021
$
400.0
300.0
190.0
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 the payment of quarterly
dividends, capital expenditures, and interest payments on debt outstanding. However, as a result of COVID-19, we may
experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future,
which could affect our financial condition or our ability to fund operations or future investment opportunities.
During 2020, we returned $39.7 of international cash to the U.S., primarily driven by a reduction in our capital investment in
certain foreign subsidiaries in conjunction with a restructuring of our international holding and operating entities. No foreign
withholding taxes were applicable, and the state income taxes were not significant. As of April 30, 2020, total cash and cash
equivalents of $83.9 was held by our foreign subsidiaries, primarily in Canada. The undistributed earnings of our foreign
subsidiaries remain permanently reinvested.
In March 2020, we completed an offering of $500.0 and $300.0 in Senior Notes due March 15, 2030, and March 15, 2050,
respectively. A portion of the net proceeds from the offering was used to repay the $500.0 Senior Notes due March 15, 2020,
with the balance being held as a cash equivalent to be used for general corporate purposes.
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 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, 2020, we have prepaid $800.0 on the Term Loan to
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28
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 financial 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”), as well as the related tax impacts of these
exclusions. 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. Additionally, income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to
adjusted income before income taxes. While this adjusted effective income tax rate does not generally differ materially from
our GAAP effective tax rate, certain exclusions from non-GAAP results can significantly impact our adjusted effective
income tax rate.
These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S.
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 financial measures to the comparable GAAP financial measure. See
page 22 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial
measure.
2020
2019
2018
2017
2016
Year Ended April 30,
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
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:
Net cash provided by (used for) operating activities
Additions to property, plant, and equipment
Free cash flow
$ 3,002.0 $ 2,915.7 $ 2,836.1 $ 2,835.3 $ 2,967.8
(12.0)
12.2
$ 2,982.4 $ 2,969.9 $ 2,802.7 $ 2,868.2 $ 2,968.0
(37.3)
3.9
(19.6)
—
27.2
5.7
54.2
—
$ 1,223.1 $
236.3
—
52.4
(19.6)
—
16.5
928.6 $ 1,044.0 $ 1,042.6 $ 1,146.3
208.4
240.3
—
97.9
107.2
—
(12.0)
54.2
12.2
—
135.9
64.1
$ 1,508.7 $ 1,492.3 $ 1,439.7 $ 1,492.9 $ 1,490.8
206.8
145.0
31.9
(37.3)
3.9
45.4
207.3
—
133.2
27.2
5.7
76.9
$
779.5 $
247.2
236.3
—
52.4
(19.6)
—
16.5
592.3 $
286.1
207.3
—
133.2
27.2
5.7
76.9
514.4 $ 1,338.6 $
(477.6)
187.2
206.8
240.3
145.0
97.9
31.9
107.2
(37.3)
54.2
3.9
—
45.4
64.1
688.7
289.2
208.4
—
—
(12.0)
12.2
135.9
$ 1,312.3 $ 1,265.3 $ 1,256.7 $ 1,328.7 $ 1,322.4
391.1
931.3
119.5
7.79
352.1
904.6 $
113.6
7.96 $
432.8
895.9 $
116.1
7.72 $
313.2
999.1 $
114.0
8.76 $
322.6
942.7 $
113.7
8.29 $
$
$
$
779.5 $
247.2
189.2
210.2
236.3
—
52.4
688.7
289.2
171.1
221.7
208.4
—
—
$ 1,714.8 $ 1,560.9 $ 1,625.1 $ 1,593.7 $ 1,579.1
514.4 $ 1,338.6 $
(477.6)
187.2
174.1
207.9
206.3
206.0
206.8
240.3
145.0
97.9
31.9
107.2
592.3 $
286.1
163.1
211.7
207.3
—
133.2
$ 1,254.8 $ 1,141.2 $ 1,218.0 $ 1,059.0 $ 1,461.0
(201.4)
(192.4)
866.6 $ 1,259.6
(359.8)
781.4 $
(269.3)
985.5 $
(321.9)
896.1 $
$
29
30
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, 2020.
Total
2021
2022–2023
2024–2025
2026 and
beyond
Long-term debt obligations, including current portion (A) $ 5,400.0 $
Interest payments (B)
Operating lease obligations (C)
Purchase obligations (D)
Other liabilities (E)
Total
— $ 1,850.0 $ 1,000.0 $ 2,550.0
1,160.5
19.8
33.2
272.9
$ 9,748.8 $ 1,775.0 $ 2,538.0 $ 1,399.4 $ 4,036.4
174.8
40.3
1,517.2
42.7
1,873.9
168.5
1,914.4
392.0
256.6
37.4
80.9
24.5
282.0
71.0
283.1
51.9
(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.
(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 $6.0 related to financing lease obligations. The liability for unrecognized tax benefits and tax-related net
interest of $15.0 under the Financial Accounting Standards Board (“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, distributors, or directly with consumers, including in-store display and product placement programs,
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, 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 2020, 2019, and 2018, 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 39 percent of net sales in 2020.
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 was $244.8 and $163.6 at
April 30, 2020 and 2019, 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 carryforwards or the projected operating results indicate that realization is not likely, a valuation
allowance would have been provided.
As of April 30, 2020, 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, 2020, the carrying value of goodwill and other intangible assets
totaled $12.7 billion, compared to total assets of $17.0 billion and total shareholders’ equity of $8.2 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, 2020, 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 2020, no goodwill impairment was recognized as a result
of the evaluations performed throughout the year. The estimated fair value of each of our reporting units for which there is a
goodwill balance 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 3 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.
At April 30, 2020, other indefinite-lived intangible assets totaled $2.9 billion. Trademarks that represent our leading brands
comprise approximately 90 percent of the total carrying value of other indefinite-lived intangible assets. As of April 30, 2020,
31
32
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
Rachael Ray Nutrish brand within the U.S. Retail Pet Foods segment. During 2020, we recognized an impairment charge of
$52.4 related to the Natural Balance brand within the U.S. Retail Pet Foods segment, representing the extent to which the
carrying value exceeded the estimated fair value. We reassessed the long-term strategic expectations for the Natural Balance
brand and reclassified this brand as a finite-lived intangible asset as of February 1, 2020.
The carrying values of the goodwill and indefinite-lived intangible assets within the U.S. Retail Pet Foods segment were
$2.4 billion and $1.4 billion, respectively, as of April 30, 2020. These intangible assets remain susceptible to future
impairment charges due to narrow differences between fair value and carrying value, which is primarily attributable to recent
impairment charges and the acquisition of Ainsworth in May 2018. Any significant adverse change in our near- or long-term
projections or macroeconomic conditions could result in future impairment charges which could be material.
Furthermore, we continue to evaluate the potential impact of COVID-19 on the fair value of our goodwill and indefinite-lived
intangible assets. While we concluded there were no indicators of impairment as of April 30, 2020, any significant sustained
adverse change in consumer purchasing behaviors, government restrictions, financial results, or macroeconomic conditions
could result in future impairment, specifically as it relates to the Away From Home reporting unit, which has experienced a
significant decline in demand as a result of COVID-19. As of April 30, 2020, the goodwill related to the Away From Home
reporting unit represented approximately 65 percent of the goodwill within the International and Away From Home segment.
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 2021
expense recognition, we will use weighted-average discount rates for the U.S. defined benefit pension plans of 3.05 percent to
determine benefit obligation, 3.34 percent to determine service cost, and 2.54 percent to determine interest cost, and a rate of
compensation increase of 3.58 percent. For the Canadian defined benefit pension plans, we will use weighted-average
discount rates of 2.95 percent to determine benefit obligation, 3.06 percent to determine service cost, and 2.47 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 4.96 percent and 3.00 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:
•
•
the impact of the COVID-19 outbreak on our business, industry, suppliers, customers, consumers, employees, and
communities, particularly with respect to our Away From Home business;
disruptions or inefficiencies in our operations or supply chain, including any impact of the COVID-19 outbreak;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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 continue operating under our capital deployment model, including
capital expenditures, debt repayment, dividend payments, and share repurchases;
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, natural disasters, and pandemics (such as COVID-19);
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;
impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in useful
lives of other intangible assets or other long-lived 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 exchange rate 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 on Form 10-K. 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, 2020, 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. The Financial Conduct
Authority in the United Kingdom has stated that it will not require banks to submit LIBOR beyond 2021. We do not
anticipate a significant impact to our financial position as a result of this action given our current mix of variable- and fixed-
rate debt.
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.
33
34
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, 2020 and 2019
For the years ended April 30, 2020, 2019, and 2018:
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.
37
38
39
42
44
43
43
45
46
47
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 were designated as cash flow hedges. In March 2020, we terminated the interest rate contracts
concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050, which resulted in a pre-tax loss of
$239.8. The loss was deferred and included as a component of accumulated other comprehensive income (loss) and is being
amortized as 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 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, 2020, the remaining benefit of $12.4 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, 2020, would increase the fair value of our long-term debt by $416.6.
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, 2020, 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 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, 2020, 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 6 percent of net sales during
2020. 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,
2020
2019
$ 37.8 $ 51.6
14.5
26.9
25.3
37.0
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.
35
36
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, 2020. 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, 2020.
Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over
financial reporting as of April 30, 2020, and their report thereon is included on page 38 of this report.
Mark T. Smucker
President and
Chief Executive Officer
Tucker H. Marshall
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, 2020, 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, 2020,
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, 2020 and 2019, 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, 2020, and the related notes and our report dated June 19, 2020 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 19, 2020
37
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
Board of Directors and 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended April 30, 2020, 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, 2020, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), and our report dated June 19, 2020 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
U.S. Retail Pet Foods Goodwill Impairment Evaluation
Description of the Matter At April 30, 2020, the Company’s total goodwill was $6.3 billion, of that, $2.4 billion relates to
the U.S. Retail Pet Foods segment. Goodwill is assigned to the Company’s reporting units as of
the acquisition date. As discussed in Note 1 and Note 7 of the consolidated financial statements,
goodwill is quantitatively tested at the reporting unit level for impairment at least annually on
February 1, or when events or circumstances occur that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The Company uses an income and
market approach in its quantitative impairment tests. U.S. Retail Pet Foods goodwill is
susceptible to impairment due to the narrow difference between fair value and carrying value.
Auditing the Company’s U.S. Retail Pet Foods goodwill impairment evaluation was complex
and highly judgmental due to the significant estimation required in determining the fair value of
the reporting unit. In particular, the fair value estimate using the income approach was sensitive
to significant assumptions such as the weighted average cost of capital, discrete revenue growth
rates, terminal period revenue growth rate, and profitability assumptions. Elements of these
significant assumptions are forward-looking and could be affected by future economic conditions
and/or changes in consumer preferences.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s U.S. Retail Pet Foods goodwill impairment review process,
including controls over the significant assumptions mentioned above.
To test the estimated fair value used in the Company’s U.S. Retail Pet Foods impairment
analysis, we performed audit procedures that included, among others, assessing fair value
methodologies and testing the significant assumptions discussed above and the underlying data
used by the Company in its analysis. For example, we compared the significant assumptions used
by management to current industry and economic trends, changes to the Company’s business
model, customer base or product mix and other relevant factors. We assessed the historical
accuracy of management’s estimates. We also performed sensitivity analyses of significant
assumptions, including the weighted average cost of capital and terminal period revenue growth
rate, to evaluate the changes in fair value that would result from changes in the assumptions and
the potential impact on the Company’s conclusion of whether or not the goodwill was impaired.
In addition, we involved our valuation specialist to assist with our evaluation of the methodology
used by the Company and significant assumptions, including, among others, the weighted
average cost of capital.
U.S. Retail Pet Foods and U.S. Retail Coffee Indefinite-Lived Intangible Assets Impairment Evaluation
Description of the Matter At April 30, 2020, the Company’s total indefinite-lived intangible assets were $2.9 billion, of
that, $1.4 billion relates to the U.S. Retail Pet Foods segment and $1.2 billion relates to the U.S.
Retail Coffee segment (collectively, the “Pet Foods and Coffee indefinite-lived intangible
assets”). As discussed in Note 1 and Note 7 of the consolidated financial statements, indefinite-
lived intangible assets are quantitatively tested for impairment at least annually on February 1, or
when events or circumstances occur that would more likely than not reduce the fair value of the
asset below its carrying amount. The Company uses an income approach in its quantitative
impairment tests. Certain Pet Foods and Coffee indefinite-lived intangible assets are individually
material, have had recently recognized impairment charges, or are susceptible to future charges
due to the narrow differences between fair value and carrying value, or a combination of some or
all three of these criteria.
Auditing the Company’s Pet Foods and Coffee indefinite-lived intangible assets impairment
evaluation was complex and highly judgmental due to the significant estimation required in
determining the fair value of the indefinite-lived intangible assets. In particular, the fair value
estimate was sensitive to significant assumptions such as the required rate of return, revenue
growth rates, terminal period revenue growth rates, and royalty rates. Elements of these
significant assumptions are forward-looking and could be affected by future economic conditions
and/or changes in consumer preferences.
39
40
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Pet Foods and Coffee indefinite-lived intangible asset impairment review
process, including controls over the significant assumptions mentioned above.
Shareholders
The J. M. Smucker Company
REPORT OF MANAGEMENT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
To test the estimated fair value used in the Company’s Pet Foods and Coffee indefinite-lived
intangible assets impairment analyses, we performed audit procedures that included, among
others, assessing fair value methodologies and testing the significant assumptions discussed
above and the underlying data used by the Company in its analysis. For example, we compared
the significant assumptions used by management to current industry and economic trends,
changes to the Company’s business model, customer base or product mix and other relevant
factors. We assessed the historical accuracy of management’s estimates. We also performed
sensitivity analyses of significant assumptions, including the required rates of return and royalty
rates, to evaluate the changes in the fair value of the indefinite-lived intangible assets that would
result from changes in the assumptions and the potential impact on the Company’s conclusion of
whether or not the indefinite-lived intangible assets were impaired. In addition, we involved our
valuation specialist to assist with our evaluation of the methodology used by the Company and
significant assumptions, including the required rate of return and royalty rate.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1955.
Akron, Ohio
June 19, 2020
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
Tucker H. Marshall
Chief Financial Officer
41
42
THE J. M. SMUCKER COMPANY
STATEMENTS OF CONSOLIDATED INCOME
Year Ended April 30,
(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
2020
2018
4,799.0
3,002.0
1,474.3
236.3
—
52.4
16.5
(0.6)
2019
$ 7,801.0 $ 7,838.0 $ 7,357.1
4,521.0
4,922.3
2,836.1
2,915.7
1,362.9
1,508.6
206.8
240.3
145.0
97.9
31.9
107.2
45.4
64.1
0.1
(31.0)
1,044.0
928.6
(174.1)
(207.9)
(8.9)
(19.1)
861.0
701.6
187.2
(477.6)
514.4 $ 1,338.6
1,026.7
247.2
779.5 $
1,223.1
(189.2)
(7.2)
$
$
$
6.84 $
6.84 $
4.52 $
4.52 $
11.79
11.78
(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
Year Ended April 30,
2020
2019
$ 779.5 $ 514.4 $ 1,338.6
2018
(15.0)
(145.2)
(36.7)
(0.3)
(197.2)
26.6
2.0
14.3
(1.2)
41.7
$ 582.3 $ 449.3 $ 1,380.3
(19.1)
(37.5)
(9.0)
0.5
(65.1)
(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.
43
THE J. M. SMUCKER COMPANY
CONSOLIDATED BALANCE SHEETS
(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
Operating lease right-of-use 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
Current operating lease liabilities
Other current liabilities
Total Current Liabilities
Noncurrent Liabilities
Long-term debt, less current portion
Defined benefit pensions
Other postretirement benefits
Deferred income taxes
Noncurrent operating lease liabilities
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 – 114,072,726 at April 30, 2020, and 113,742,296
at April 30, 2019 (net of 32,425,004 and 32,755,434 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.
44
April 30,
2020
2019
$
391.1 $
551.4
101.3
503.8
563.5
331.8
895.3
134.9
1,972.7
590.8
319.5
910.3
109.8
1,625.2
129.5
977.9
2,398.3
232.6
3,738.3
(1,768.9)
1,969.4
122.1
903.2
2,185.0
321.8
3,532.1
(1,619.7)
1,912.4
—
148.4
6,310.9
6,304.5
6,718.8
6,429.0
144.0
146.4
13,028.3
13,173.7
$ 16,970.4 $ 16,711.3
$
782.0 $
99.8
167.5
100.3
—
248.0
36.5
153.0
1,587.1
5,373.3
179.3
70.0
1,351.6
120.0
98.2
7,192.4
8,779.5
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
—
—
29.0
5,794.1
2,746.8
(379.0)
8,190.9
28.9
5,755.8
2,367.6
(181.8)
7,970.5
$ 16,970.4 $ 16,711.3
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
Settlement of interest rate contracts
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 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
Proceeds from stock option exercises
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,
2020
2019
2018
$
779.5 $
514.4 $ 1,338.6
210.2
236.3
—
52.4
26.8
—
7.6
13.0
8.1
(239.8)
(5.1)
(49.1)
12.6
(15.7)
181.6
48.0
6.5
(18.1)
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)
1,254.8
1,141.2
—
(269.3)
—
2.4
(4.6)
(271.5)
(1,903.0)
(359.8)
369.5
1.1
(32.0)
(1,924.2)
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)
(185.8)
798.2
(900.0)
(396.8)
(4.2)
7.1
(7.2)
(688.7)
(4.8)
289.8
101.3
391.1 $
$
282.0
1,500.0
(700.0)
(377.9)
(5.4)
—
0.3
699.0
(7.3)
(91.3)
192.6
101.3 $
(310.0)
799.6
(1,050.3)
(350.3)
(7.0)
3.9
(7.9)
(922.0)
7.4
25.8
166.8
192.6
(Dollars in millions)
Balance at May 1, 2017
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Common
Shares
Outstanding
Common
Shares
Additional
Capital
Retained
Income
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
113,439,553 $ 28.4 $ 5,724.7 $ 1,240.5 $
(143.4) $ 6,850.2
1,338.6
41.7
(54,535)
187,822
—
—
(5.8)
(1.2)
21.3
Cash dividends declared, $3.12 per common share
Reclassification of stranded tax effects (A)
Other
(353.7)
15.0
(15.0)
0.5
(0.5)
Balance at April 30, 2018
113,572,840
28.9
5,739.7
2,239.2
(116.7)
7,891.1
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared, $3.40 per common share
Other
514.4
(65.1)
(50,723)
220,179
—
—
—
(5.4)
—
21.5
(386.0)
—
514.4
(65.1)
449.3
(5.4)
21.5
(386.0)
—
Balance at April 30, 2019
113,742,296
28.9
5,755.8
2,367.6
(181.8)
7,970.5
Net income
Other comprehensive income (loss)
Comprehensive Income
Purchase of treasury shares
Stock plans
Cash dividends declared, $3.52 per common share
Other
Balance at April 30, 2020
779.5
(197.2)
(35,588)
366,018
—
0.1
(4.3)
0.1
42.6
(400.4)
—
114,072,726 $ 29.0 $ 5,794.1 $ 2,746.8 $
—
(379.0) $ 8,190.9
(A) During 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 U.S. Tax Cuts and Jobs Act (the “Tax Act”) from
accumulated other comprehensive income (loss) to retained earnings.
See notes to consolidated financial statements.
1,338.6
41.7
1,380.3
(7.0)
21.3
(353.7)
—
—
779.5
(197.2)
582.3
(4.2)
42.7
(400.4)
45
46
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 rates 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 an original maturity of three
months or less when purchased to be cash equivalents. Based on the short-term nature of these assets, carrying value
approximates fair value. Cash equivalents within cash and cash equivalents in the Consolidated Balance Sheet was $300.2 at
April 30, 2020. There were no cash equivalents included in cash and cash equivalents at April 30, 2019.
Revenue Recognition: Most of our revenue is derived from the sale of food and beverage products to food retailers, online
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,
distributors, or directly with consumers, including in-store display and product placement programs, 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, 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 2020, 2019, and 2018, 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 39 percent, 36 percent, and 35 percent of net sales in 2020, 2019, and 2018, 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 $286.4, $266.6,
and $245.4 in 2020, 2019, and 2018, respectively.
Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $198.6, $237.5, and $194.2 in
2020, 2019, and 2018, 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 and existing product and
manufacturing process innovation, which are comprised primarily of internal salaries and wages, consulting, testing, and
other supplies attributable to time spent on R&D activities. Other costs include the depreciation and maintenance of research
facilities. Total R&D expense was $57.7, $56.0, and $56.0 in 2020, 2019, and 2018, respectively.
Share-Based Payments: Share-based compensation expense, including stock options, is recognized on a straight-line basis
over the requisite service period, and generally vest over a period of one to four years.
The following table summarizes amounts related to share-based payments.
Share-based compensation expense included in SD&A
Share-based compensation expense (benefit) included in other special project costs
Total share-based compensation expense
Related income tax benefit
Year Ended April 30,
2020
2019
2018
$
$
$
26.4 $
0.4
26.8 $
6.4 $
20.1 $
0.6
20.7 $
4.9 $
13.7
1.7
15.4
4.6
As of April 30, 2020, total unrecognized share-based compensation cost related to nonvested share-based awards was $45.9.
The weighted-average period over which this amount is expected to be recognized is 2.6 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 2020, 2019, and 2018, the excess tax benefits
realized upon exercise or vesting of share-based compensation were $0.9, $0.5, and $1.5, respectively. For additional
discussion on share-based compensation expense, see Note 13: 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
2020, 2019, and 2018 were $39.7, $37.1, and $36.3, 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.
Trade Receivables: In the normal course of business, we extend credit to customers. Trade receivables, less allowances,
reflects the net realizable value of receivables and approximates fair value. We evaluate our trade receivables and establish an
allowance for doubtful accounts based on a combination of factors. When aware that a specific customer has been impacted
by circumstances such as bankruptcy filings or deterioration in the customer’s operating results or financial position,
potentially making it unable to meet its financial obligations, we record a specific reserve for bad debt to reduce the related
receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for all other customers
based on a variety of factors, including the length of time the receivables are past due, historical collection experience, and an
evaluation of current and projected economic conditions at the balance sheet date. Trade receivables are charged off against
the allowance after we determine that the potential for recovery is remote. At April 30, 2020 and 2019, the allowance for
doubtful accounts was $3.0 and $1.8, 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.
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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 $65.4 and $72.5 at April 30, 2020 and 2019,
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 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.
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 related to software that we have purchased or has been licensed to us, 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. Lease expense in 2020,
2019, and 2018 totaled $112.8, $99.2, and $95.2, respectively.
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, 2020.
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. 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, 2020 and 2019, the fair value of these investments was $38.6 and $40.9, respectively, and was included in other
noncurrent assets in the Consolidated Balance Sheets. Included in accumulated other comprehensive income (loss) at
April 30, 2020 and 2019, were unrealized pre-tax gains of $5.0 and $5.4, 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.
We have a 20 percent equity interest in Mountain Country Foods, LLC, and a 42 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, 2020 and 2019.
Supplier Financing Program: During 2020, we entered into an agreement with a third-party administrator to provide an
accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability
to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution. Participating
suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and obligations to our
suppliers are not impacted. We have no economic interest in a supplier’s decision to enter into these agreements. Our
obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers’
decisions to sell amounts under these arrangements. However, our right to offset balances due from suppliers against our
payment obligations is restricted by the agreement for those payment obligations that have been sold by our suppliers. The
payment of these obligations is included in cash provided by operating activities in the Consolidated Statement of Cash
Flows. Included in accounts payable in the Consolidated Balance Sheet as of April 30, 2020, were $157.5 of outstanding
payment obligations that were elected and sold to a financial institution by participating suppliers.
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, 2020 and 2019, were foreign currency losses of $50.5 and
$35.5, respectively.
Recently Issued Accounting Standards: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)
Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations and
interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will be effective
for us on May 1, 2021, with the option to early adopt at any time prior to the effective date. Accounting for franchise taxes
will require adoption on a retrospective or modified retrospective basis through a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. All other applicable provisions will require adoption on a
retrospective, modified retrospective, or prospective basis, as required by ASU 2019-12. We do not anticipate that the
adoption of this ASU will have a material impact on our financial statements and disclosures.
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. ASU 2018-15 is effective for us on May 1, 2020, but we elected to early adopt on May 1, 2019, as permitted, on a
prospective basis. During 2020, we capitalized implementation costs related to third-party cloud computing services of $4.9
which is reflected in other noncurrent assets in the Consolidated Balance Sheet.
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, as well as clarifies certain
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other, disclosure requirements. ASU 2018-14 will be effective for us on May 1, 2020, 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.
In February 2016, in an effort to increase transparency and comparability among organizations, 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. We adopted the requirements of ASU 2016-02 and all related amendments on May 1, 2019,
utilizing an optional transition method that allows for a cumulative-effect adjustment in the period of adoption with no
restatement of prior periods. This transition method also does not require new lease disclosures for periods prior to the
effective date. We elected certain practical expedients available under the guidance, including a package of practical
expedients which allowed us to not reassess prior conclusions related to existing contracts containing leases, lease
classification, and initial direct costs.
Adoption of ASU 2016-02 on May 1, 2019, resulted in the recognition of operating lease right-of-use assets and lease
liabilities of $159.2 and $166.6, respectively, in our Consolidated Balance Sheet. The difference between the additional lease
assets and lease liabilities was primarily due to an existing deferred rent balance that was reclassified to the operating lease
liability. The new standard did not materially impact our Statement of Consolidated Income or Statement of Consolidated
Cash Flows. The additional disclosures required are presented within Note 12: Leases.
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 two contracts expiring in 2021, representing 2 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 equity of Ainsworth, a leading producer, distributor, and marketer of premium pet food
and pet snacks, predominantly within the U.S., in an all-cash transaction valued at $1.9 billion. 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.
During 2019, 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
allocation included total intangible assets of $1.3 billion. The purchase price exceeded the estimated fair value of the net
identifiable tangible and intangible assets acquired and, as a result, the excess was allocated to goodwill. As a result of the
acquisition, we recognized total goodwill of $617.8 within the U.S. Retail Pet Foods segment, which represented the value
we expected to achieve through the implementation of operational synergies and growth opportunities as a result of
integrating 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 $385.8 remains deductible at April 30, 2020. 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 due to the narrow differences between fair value and carrying value. Any significant
adverse change in our near or long-term projections or macroeconomic conditions could result in future impairment charges.
For more information, see Note 7: Goodwill and Other Intangible Assets.
Note 3: Integration and Restructuring Costs
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 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: As of April 30, 2020, all integration activities related to the acquisition of Ainsworth were considered
complete. The following table summarizes our integration costs incurred related to the Ainsworth acquisition.
Employee-related costs
Other transition and termination costs
Total integration costs
2020
2019
$
$
2.4 $
14.1
16.5 $
Total Costs
Incurred to Date
at April 30, 2020
17.9
30.7
48.6
15.5 $
16.6
32.1 $
Noncash charges of $0.6 and $4.1 were included in the integration costs incurred during 2020 and 2019, respectively.
Cumulative noncash charges incurred to date were $4.7 and primarily consisted of accelerated depreciation. The obligation
related to severance costs and retention bonuses was $0.5 and $1.6 at April 30, 2020 and 2019, respectively.
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 2020 and 2019. During 2018, we incurred total integration costs of $26.6. Noncash charges
of $2.6 were included in the total integration costs incurred in 2018 and primarily consisted of share-based compensation and
accelerated depreciation. The obligation related to severance costs and retention bonuses was fully satisfied at April 30, 2019.
Restructuring Costs: We completed the restructuring activities associated with our organization optimization program as of
April 30, 2019, and as a result, we did not incur any related costs during 2020. We incurred restructuring costs of $32.0 and
$22.7 during 2019 and 2018, respectively. Total restructuring costs of $74.6 were incurred related to the program, which
included $48.7 and $25.9 of employee-related costs and other transition and termination costs, respectively. Noncash charges
included in the total restructuring costs were $15.2, of which $3.3 and $9.8 were incurred during 2019 and 2018, respectively.
Noncash charges primarily consisted of accelerated depreciation. The obligation related to severance costs and retention
bonuses was fully satisfied as of April 30, 2020, and was $0.8 at April 30, 2019.
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.
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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 Pet Foods, U.S. Retail Coffee, U.S. Retail Consumer Foods, and International and Away From Home.
The U.S. Retail Pet Foods segment primarily includes domestic sales of Rachael Ray Nutrish, Meow Mix, Milk-Bone,
Kibbles ’n Bits, 9Lives, Natural Balance, Nature’s Recipe, and Pup-Peroni branded products; the U.S. Retail Coffee segment
primarily includes the domestic sales of Folgers, Dunkin’, and Café Bustelo branded coffee; and the U.S. Retail Consumer
Foods segment primarily includes domestic sales of Smucker’s, Jif , and Crisco 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., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and
universities, and convenience stores).
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 Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Total net sales
Segment profit:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer 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 Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Unallocated (B)
Total assets
Depreciation, amortization, and impairment charges:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Unallocated (C)
Total depreciation, amortization, and impairment charges
Additions to property, plant, and equipment:
U.S. Retail Pet Foods
U.S. Retail Coffee
U.S. Retail Consumer Foods
International and Away From Home
Total additions to property, plant, and equipment
Year Ended April 30,
2020
2019
2018
$
$
$
$
$
2,869.5 $
2,149.5
1,731.7
1,050.3
7,801.0 $
2,879.5 $
2,122.3
1,761.5
1,074.7
7,838.0 $
2,165.3
2,086.8
1,985.6
1,119.4
7,357.1
552.7 $
691.0
389.7
173.4
1,806.8 $
(236.3)
—
(52.4)
(189.2)
19.6
—
(16.5)
(298.1)
(7.2)
1,026.7 $
503.4 $
676.3
406.1
198.5
1,784.3 $
(240.3)
(97.9)
(107.2)
(207.9)
(54.2)
—
(64.1)
(292.0)
(19.1)
701.6 $
439.4
612.4
475.3
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
$
7,731.4 $
4,787.4
2,873.1
1,048.0
530.5
5,932.3
4,815.4
3,217.5
1,043.9
292.1
$ 16,970.4 $ 16,711.3 $ 15,301.2
7,847.0 $
4,771.9
2,850.8
1,019.5
222.1
$
$
$
$
243.0 $
96.4
72.5
51.9
35.1
498.9 $
60.1 $
62.4
107.7
39.1
269.3 $
301.4 $
98.3
162.4
52.8
36.5
651.4 $
136.0 $
63.9
138.9
21.0
359.8 $
314.8
96.6
80.2
57.8
40.6
590.0
34.3
89.4
168.9
29.3
321.9
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(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.
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
Cat food
Pet snacks
Peanut butter
Fruit spreads
Frozen handheld
Shortening and oils
Portion control
Juices and beverages
Baking mixes and ingredients
Other
Total net sales
Year Ended April 30,
2020
2,475.4 $
1,217.6
869.2
849.7
730.6
370.3
365.0
262.3
153.3
125.7
89.9
292.0
7,801.0 $
2019
2,479.4 $
1,313.1
812.8
815.1
756.6
341.6
289.0
253.6
162.7
123.9
185.2
305.0
7,838.0 $
$
$
Year Ended April 30,
2020
2019
2018
$
7,247.9 $
7,298.0 $
6,786.5
$
$
$
445.3 $
107.8
553.1 $
7,801.0 $
421.9 $
118.1
540.0 $
7,838.0 $
431.8
138.8
570.6
7,357.1
$ 16,547.6 $ 16,338.0 $ 14,828.2
$
421.3 $
1.5
422.8 $
428.7
44.3
$
473.0
$ 16,970.4 $ 16,711.3 $ 15,301.2
362.1 $
11.2
373.3 $
$
2,209.9 $
2,037.5 $
1,869.8
$
$
$
54.3 $
—
54.3 $
2,264.2 $
18.9 $
—
18.9 $
2,056.4 $
17.4
0.3
17.7
1,887.5
2018
2,469.7 U.S. Retail Coffee
Primary Reportable Segment (A)
756.8 U.S. Retail Pet Foods
702.5 U.S. Retail Pet Foods
767.2 U.S. Retail Pet Foods
745.1 U.S. Retail Consumer Foods
353.8 U.S. Retail Consumer Foods
254.1 U.S. Retail Consumer Foods
258.1 U.S. Retail Consumer Foods
160.3
140.8 U.S. Retail Consumer Foods
437.9
310.8
7,357.1
International and Away From Home
International and Away From Home (B)
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.
Year Ended April 30,
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:
2018
2020
4.4
2.6
2019
$ 779.5 $ 514.4 $ 1,338.6
6.8
$ 775.1 $ 511.8 $ 1,331.8
113.0
113.1
—
—
113.1
113.0
4.52 $ 11.79
4.52 $ 11.78
113.4
—
113.4
6.84 $
6.84 $
$
$
Balance at May 1, 2018
Acquisition
Divestiture
Impairment charge (A)
Other (B)
Balance at April 30, 2019
Other (B)
Balance at April 30, 2020
$
$
$
U.S. Retail
Pet Foods
1,824.5 $
617.8
U.S. Retail
Coffee
2,090.9 $
—
U.S. Retail
Consumer
Foods
1,600.4 $
—
International
and Away
From Home
—
—
—
—
—
2,442.3 $
—
2,442.3 $
—
2,090.9 $
—
2,090.9 $
(144.3)
(97.9)
—
1,358.2 $
—
1,358.2 $
426.4 $
—
—
—
(6.9)
419.5 $
(6.4)
413.1 $
Total
5,942.2
617.8
(144.3)
(97.9)
(6.9)
6,310.9
(6.4)
6,304.5
(A) We have recognized accumulated goodwill impairment charges of $242.9 as of April 30, 2020.
(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.
(B) During 2019 and 2018, the primary reportable segment was U.S. Retail Consumer Foods, as the majority of the net sales within this
category were related to the divested U.S. baking business. For more information, see Note 4: Divestiture.
Sales to Walmart Inc. and subsidiaries amounted to 32 percent, 32 percent, and 31 percent of net sales in 2020, 2019, and
2018, 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, 2020 and 2019, included amounts due from Walmart Inc.
and subsidiaries of $131.9 and $137.7, respectively.
55
56
The following table summarizes our other intangible assets and related accumulated amortization and impairment charges,
including foreign currency exchange adjustments.
April 30, 2020
Accumulated
Amortization/
Impairment
Charges/
Foreign
Currency
Exchange
Acquisition
Cost
April 30, 2019
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 $
1,353.0 $ 3,118.1 $ 4,471.1 $
1,156.8 $ 3,314.3
Patents and technology
Trademarks
168.5
662.0
138.4
311.0
30.1
351.0
168.5
499.9
127.4
166.9
41.1
333.0
Total intangible assets subject to amortization $ 5,301.6 $
Indefinite-lived intangible assets not subject to
amortization:
Trademarks
$ 3,158.1 $
1,802.4 $ 3,499.2 $ 5,139.5 $
1,451.1 $ 3,688.4
228.3 $ 2,929.8 $ 3,321.1 $
290.7 $ 3,030.4
Total other intangible assets
$ 8,459.7 $
2,030.7 $ 6,429.0 $ 8,460.6 $
1,741.8 $ 6,718.8
Amortization expense for finite-lived intangible assets was $235.3, $239.1, and $204.8 in 2020, 2019, and 2018, respectively.
The weighted-average useful lives of the customer and contractual relationships, patents and technology, and trademarks are
24 years, 15 years, and 16 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, 2020, the estimated
amortization expense is $238.7 for 2021, $232.8 for 2022, $225.5 for 2023, $220.8 for 2024, and $217.3 for 2025.
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 2020, we began our annual planning cycle, which was not complete at the end of the quarter;
however, certain brand-level decisions were made that we evaluated to determine whether the carrying value of certain
indefinite-lived intangible assets more likely than not exceeded fair value. As a result, we recognized an impairment charge
of $52.4 during the third quarter of 2020, related to the Natural Balance brand within the U.S. Retail Pet Foods segment due
to a decline in current year and long-term net sales expectations and the royalty rate used in the interim analysis, primarily
driven by the market environment and re-positioning of this brand within the Pet Foods brand portfolio. This charge was
included as a noncash charge in our Statement of Consolidated Income. Additionally, we reassessed the long-term strategic
expectations for the Natural Balance brand and reclassified this brand as a finite-lived intangible asset as of February 1,
2020.
As of February 1, 2020, we completed the annual impairment review, in which goodwill impairment was tested at the
reporting unit level for our six reporting units with goodwill. As part of our annual evaluation, we did not recognize any
additional impairment charges related to our goodwill and indefinite-lived intangible assets. The estimated fair value was
substantially in excess of the carrying value for the majority of the 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 the Rachael Ray Nutrish brand 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
$1.4 billion, respectively, as of April 30, 2020. These intangible assets remain susceptible to future impairment charges due
to narrow differences between fair value and carrying value, which is primarily attributable to the 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 change in our near or long-term projections or
macroeconomic conditions could result in future impairment charges, which could be material.
Following the completion of our annual impairment review, we further evaluated the potential impact of COVID-19 on the
fair value of our goodwill and indefinite-lived intangible assets. While we concluded there were no indicators of impairment
as of April 30, 2020, any significant sustained adverse change in consumer purchasing behaviors, government restrictions,
financial results, or macroeconomic conditions could result in future impairment, specifically as it relates to the Away From
Home reporting unit, which has experienced a significant decline in demand as a result of COVID-19. We will continue to
evaluate the nature and extent to which COVID-19 could impact our business and our goodwill and other intangible assets.
As of April 30, 2020, the goodwill related to the Away From Home reporting unit represented approximately 65 percent of
the goodwill within the International and Away From Home segment.
During 2019, we recognized impairment charges of $97.9 related to the goodwill of the Natural Foods reporting unit within
the U.S. Retail Consumer Foods segment and $107.2 related to certain indefinite-lived intangible assets within the U.S. Retail
Pet Foods segment. These charges were primarily the result of reductions in our long-term net sales and profitability
projections and were included as noncash charges in our Statement of Consolidated Income.
Note 8: Debt and Financing Arrangements
The following table summarizes the components of our long-term debt.
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
2.38% Senior Notes due March 15, 2030
4.25% Senior Notes due March 15, 2035
4.38% Senior Notes due March 15, 2045
3.55% Senior Notes due March 15, 2050
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, 2020
April 30, 2019
Principal
Outstanding
Carrying
Amount (A)
Principal
Outstanding
Carrying
Amount (A)
$
$
$
— $
—
750.0
400.0
1,000.0
500.0
500.0
650.0
600.0
300.0
700.0
5,400.0 $
—
5,400.0 $
— $
—
761.1
398.7
996.0
496.7
495.2
643.9
586.5
295.7
699.5
5,373.3 $
—
5,373.3 $
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 $
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
(A) Represents the carrying amount included in the Consolidated Balance Sheets, which includes the impact of capitalized debt issuance
costs, offering discounts, and terminated interest rate contracts.
In March 2020, we completed an offering of $800.0 in Senior Notes due March 15, 2030, and March 15, 2050. The Senior
Notes included $7.4 of capitalized debt issuance costs and $1.8 of offering discounts to be amortized to interest expense over
the life of the debt. A portion of the net proceeds from the offering was used to repay the $500.0 Senior Notes due March 15,
2020, with the balance being held as a cash equivalent to be used for general corporate purposes. Concurrent with the pricing
of these Senior Notes, we terminated the interest rate contracts entered into in November 2018 and June 2018, resulting in a
pre-tax loss of $239.8, which was deferred and included as a component of accumulated other comprehensive income (loss)
and is being amortized as interest expense over the life of the debt. For additional information, see Note 10: Derivative
Financial Instruments.
All of our Senior Notes outstanding at April 30, 2020, 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.
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, 2020,
we have prepaid $800.0 on the Term Loan to date, including $100.0 in 2020. The interest rate on the Term Loan at April 30,
2020, was 1.21 percent. In November 2019, we entered into an amendment to the Term Loan that decreased the applicable
57
58
margins on LIBOR, based on our long-term unsecured debt rating. This amendment did not have a material impact on our
consolidated financial statements.
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.
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, 2020 and 2019.
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, 2020 and 2019, we had
$248.0 and $426.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper
program at weighted-average interest rates of 0.40 percent and 2.75 percent, respectively.
Interest paid totaled $193.4, $213.3, and $158.9 in 2020, 2019, and 2018, 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.
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
Defined Benefit Pension Plans
Other Postretirement Benefits
2020
2019
2018
2020
2019
2018
23.2
21.6
2.3
—
$ 1.6 $ 2.1 $ 5.2 $ 1.8 $ 1.9 $ 2.0
2.1
2.3
20.9
—
(24.1) (26.8) (28.8) —
(1.4)
(0.3)
—
—
—
$ 7.5 $ 15.1 $ 12.7 $ 2.7 $ 2.5 $ 2.4
0.9
11.5
—
2.3
—
0.9
7.9
—
0.1
0.2
0.9
8.3
0.3
7.1
—
—
—
—
—
—
0.2
(1.3)
(0.6)
(1.1)
(0.3)
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
$ — $ — $ — $ — $ (2.0) $ (0.2)
5.5
(51.6) (22.9)
(1.4)
(0.3)
—
—
(0.1)
$ (41.6) $ (5.1) $ 16.4 $ (5.8) $ (6.7) $ 3.5
3.5
0.9
11.5
—
—
2.3
—
(1.8) —
0.9
7.9
—
0.1
1.1
—
—
—
(4.4)
(1.1)
(0.3)
(2.8)
(1.3)
(0.6)
0.9
8.3
0.3
7.1
1.2
Net change for year
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
3.99 % 4.17 % 3.95 % 3.91 % 4.13 % 3.86 %
4.20
3.61
5.28
3.56
4.29
3.87
5.66
3.59
4.06
3.24
—
—
4.23
3.79
—
—
4.20
3.38
6.27
3.78
4.07
3.47
—
—
3.21 % 3.57 % 3.22 % 3.19 % 3.55 % 3.19 %
3.29
2.86
5.00
3.00
3.39
2.60
5.00
3.00
3.44
2.86
—
—
3.70
2.58
—
—
3.64
3.23
5.25
3.00
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.
59
60
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
Curtailment
Settlement
Termination benefit cost
Foreign currency translation adjustments
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
2020
2019
2020
2019
$
$
$
$
$
$
$
615.5 $
1.6
20.9
—
61.8
(39.6)
—
(4.9)
0.2
(3.2)
652.3 $
480.3 $
34.3
5.1
(39.6)
(4.9)
(3.6)
471.6 $
(180.7) $
(179.3) $
11.6
(13.0)
—
(180.7) $
639.7 $
2.1
23.2
—
17.0
(33.9)
(1.3)
(27.7)
—
(3.6)
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) $
70.1 $
1.8
2.3
—
4.4
(3.8)
—
—
—
(0.3)
74.5 $
— $
—
3.8
(3.8)
—
—
— $
(74.5) $
— $
—
(4.5)
(70.0)
(74.5) $
65.9
1.9
2.3
2.0
2.8
(4.7)
—
—
0.2
(0.3)
70.1
—
—
4.7
(4.7)
—
—
—
(70.1)
—
—
(5.1)
(65.0)
(70.1)
The following table summarizes amounts recognized in accumulated other comprehensive income (loss) in the Consolidated
Balance Sheets, before income taxes.
Defined Benefit Pension Plans
Other Postretirement Benefits
April 30,
Net actuarial gain (loss)
Prior service credit (cost)
2020
(199.7) $
2019
(157.2) $
$
2020
2019
5.5 $
(2.6)
(3.5)
4.7
10.2
5.8
16.0
Total recognized in accumulated other comprehensive income (loss)
$
(202.3) $
(160.7) $
10.2 $
During 2021, we expect to recognize amortization of net actuarial losses and prior service credit of $11.7 and $0.1,
respectively, in net periodic benefit cost.
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
2020
2019
2020
2019
3.05 %
3.58
2.95 %
3.00
3.99 %
3.56
3.21 %
3.00
2.98 %
—
2.93 %
—
3.91 %
—
3.19 %
—
For 2021, the assumed health care trend rates are 6.3 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, 2020:
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 60 and 61.
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)
Termination benefit cost
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
2020
2019
2020
2019
$
$
$
$
$
80.1 $
91.0
10.9 $
0.1 $
2.3
(4.4)
1.1
0.2
(0.7) $
0.1 $
(6.8)
9.2
(3.6)
84.8 $
92.1
7.3 $
0.1 $
2.7
(4.8)
0.9
—
(1.1) $
0.1 $
(6.5)
6.1
(3.9)
6.8 $
—
(6.8) $
— $
0.2
—
—
—
0.2 $
0.3 $
(0.3)
—
—
7.1
—
(7.1)
—
0.2
—
—
—
0.2
0.5
(0.5)
—
—
61
62
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,
2020
2019
$ 642.8 $ 605.6
$ 563.4 $ 521.5
388.2
380.6
$ 572.9 $ 531.4
388.2
380.6
We employ a total return on investment approach for the defined benefit pension plans’ assets. A mix of equity, fixed-
income, and alternative investments is used to maximize the long-term rate of return on assets for the level of risk. In
determining the expected long-term rate of return on the defined benefit pension plans’ assets, we consider the historical rates
of return, the nature of investments, the asset allocation, and expectations of future investment strategies. The actual rate of
return was 7.8 percent and 3.8 percent for the years ended April 30, 2020 and 2019, respectively, which excludes
administrative and investment expenses.
Our current investment policy is to invest approximately 65 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.
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
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
$
2.1 $
— $
51.2
65.9
—
—
212.1
93.4
—
424.7 $
—
—
41.8
41.8 $
$
Plan Assets at
April 30, 2020
2.1
— $
—
—
—
—
—
— $
$
51.2
65.9
212.1
93.4
41.8
466.5
5.1
471.6
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
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
$
0.5 $
— $
65.7
74.3
1.8
9.2
220.6
51.8
—
412.9 $
—
—
46.3
57.3 $
$
Plan Assets at
April 30, 2019
0.5
— $
—
—
—
—
—
— $
$
67.5
83.5
220.6
51.8
46.3
470.2
10.1
480.3
(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 in
2019 was 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 in 2019 was 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. These assets are valued using quoted market prices for identical securities in
active markets and are classified as Level 1 assets.
(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. These assets are valued using quoted market prices for identical securities
in active markets and are classified as Level 1 assets.
(F) This category is comprised of a real estate fund whereby the underlying investments are contained in the Canadian market, and a
common collective trust fund investing in direct commercial property funds. The real estate fund and the collective trust fund
investing in direct commercial property are classified as Level 2 assets, 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.
(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. Furthermore, as a practical expedient
equivalent to our defined benefit plan’s ownership interest in the partners’ capital, 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.
In 2021, we expect to make contributions of approximately $1.0, while making direct benefit payments of approximately
$13.5, primarily related to our defined benefit pension plans. Further, we expect the following payments to be made from the
defined benefit pension and other postretirement benefit plans: $43.7 in 2021, $45.9 in 2022, $45.6 in 2023, $45.2 in 2024,
$45.4 in 2025, and $213.3 in 2026 through 2030.
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 2020 and 2019, a total of $2.2 and $2.3 was contributed to the plan, respectively,
and we anticipate contributions of $2.5 in 2021.
63
64
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 2019, the Bakery and Confectionery Union Fund was in Red Zone status, as the current
funding status was 50.4 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.
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 were designated as cash flow hedges. In March 2020, we terminated the interest rate contracts
concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050, which resulted in a pre-tax loss of
$239.8. The loss was deferred and included as a component of accumulated other comprehensive income (loss) and is being
amortized as interest expense over the life of the debt.
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 pre-
tax 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 $41.1 of the gain, of which $8.1, $8.0, and $7.8 were recognized in 2020, 2019, and
2018, respectively. The remaining gain will be recognized as follows: $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 not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivative instruments
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
April 30, 2020
Other
Current
Assets
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
14.7 $
2.4
17.1 $
33.2 $
0.1
33.3 $
— $
—
— $
—
—
—
April 30, 2019
Other
Current
Assets
Other
Current
Liabilities
Other
Noncurrent
Assets
Other
Noncurrent
Liabilities
— $
— $
49.1 $
49.1 $
4.8 $
1.4
6.2 $
6.2 $
25.8 $
0.2
26.0 $
75.1 $
— $
— $
— $
—
— $
— $
—
—
—
—
—
—
$
$
$
$
$
$
$
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, 2020
and 2019, we maintained cash margin account balances of $43.2 and $40.7, 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 $189.2, $207.9, and $174.1 in 2020, 2019,
and 2018, 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
2020
$
(190.7) $
(49.1) $
2.7
(2.1)
(0.4)
$
(188.6) $
(48.7) $
(0.5)
3.2
65
66
Included as a component of accumulated other comprehensive income (loss) at April 30, 2020 and 2019, were deferred net
pre-tax losses of $241.1 and $52.5, respectively, related to the terminated interest rate contracts. The related net tax benefit
recognized in accumulated other comprehensive income (loss) was $55.5 and $12.1 at April 30, 2020 and 2019, respectively.
Approximately $13.9 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate
contracts.
Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market
assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value
measurements fall for our financial instruments.
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as
hedging 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
2020
$ (31.4) $ (98.6) $
2.3
3.0
$ (29.1) $ (95.6) $
6.5
(5.9)
0.6
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses
outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses
from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the
hedge without experiencing any mark-to-market volatility. The following table presents the activity in unallocated derivative
gains and losses.
Year Ended April 30,
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)
2018
2020
2019
$ (29.1) $ (95.6) $ 0.6
(48.7) (41.4) (36.7)
$ 19.6 $ (54.2) $ 37.3
The net cumulative unallocated derivative gains and losses at April 30, 2020 and 2019, were losses of $32.9 and $52.5,
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,
2020
2019
$
890.1 $
65.6
—
544.8
144.9
800.0
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.
April 30, 2020
April 30, 2019
Marketable securities and other investments
Derivative financial instruments – net
Total long-term debt
Carrying
Amount
Carrying
Amount
$
Fair Value
Fair Value
40.9
(68.9)
(5,373.3) (5,740.6) (5,484.8) (5,504.0)
38.6 $
(16.2)
38.6 $
(16.2)
40.9 $
(68.9)
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs.
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
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
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, 2020
$
8.7 $
— $
— $
—
5.7
24.2
—
(18.3)
(0.2)
0.2
2.1
—
—
—
—
8.7
24.2
5.7
(18.5)
2.3
(5,032.0)
(708.6)
(5,035.7) $ (682.5) $
$
—
— $
(5,740.6)
(5,718.2)
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
$
8.7 $
— $
— $
—
0.5
31.7
—
(20.7)
(0.3)
(0.1)
1.3
—
(49.1)
—
—
—
—
—
8.7
31.7
0.5
(21.0)
1.2
(49.1)
(857.4)
(4,646.6)
(4,658.2) $ (873.8) $
$
—
— $
(5,504.0)
(5,532.0)
(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, 2020, our municipal obligations are scheduled to mature as follows: $1.0 in 2021, $1.5 in
2022, $3.5 in 2024, and the remaining $18.2 in 2025 and beyond. We do not have any municipal obligations scheduled to mature in
2023. 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 were 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.
67
68
We recognized impairment charges of $52.4 during 2020, related to the Natural Balance brand in the U.S. Retail Pet Foods
segment. During 2019, we recognized impairment charges of $205.1, 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. These adjustments were included as noncash charges in our Statements of
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: Leases
We lease certain warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating
lease agreements. We have elected to not recognize leases with a term of 12 months or less on the balance sheet. Instead, we
recognize the related lease expense on a straight-line basis over the lease term.
Although the majority of our right-of-use asset and lease liability balances consist of leases with renewal options, we
generally are not reasonably certain to exercise them, and therefore, the optional periods do not typically impact the lease
term. Certain leases also include termination provisions or options to purchase the leased property. Since we are not
reasonably certain to exercise these types of options, minimum lease payments do not include any amounts related to these
termination or purchase options. Our lease agreements generally do not contain residual value guarantees or restrictive
covenants that are material.
We determine if an agreement is or contains a lease at inception by evaluating whether an identified asset exists that we
control over the term of the arrangement. A lease commences when the lessor makes the identified asset available for our use.
We generally account for lease and non-lease components as a single lease component. Minimum lease payments do not
include variable lease payments other than those that depend on an index or rate.
For the majority of our leases, the interest rate implicit in the lease cannot be readily determined, so we utilize our
incremental borrowing rate to present value lease payments using information available at the lease commencement date. We
consider our credit rating and the current economic environment in determining this collateralized rate. For the initial
implementation of the lease standard, the incremental borrowing rate at May 1, 2019, was used to calculate all operating lease
liabilities.
The following table sets forth the right-of-use assets and lease liabilities recognized in the Consolidated Balance Sheet.
Operating lease right-of-use assets
Operating lease liabilities:
Current operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Finance lease right-of-use assets:
Machinery and equipment
Accumulated depreciation
Total property, plant, and equipment
Finance lease liabilities:
Other current liabilities
Other noncurrent liabilities
Total finance lease liabilities
April 30, 2020
$
$
$
$
$
$
$
148.4
36.5
120.0
156.5
11.6
(5.9)
5.7
2.2
3.5
5.7
The following table summarizes the components of lease expense.
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Variable lease cost
Short-term lease cost
Sublease income
Net lease cost
The following table sets forth cash flow and noncash information related to leases.
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases
Finance leases
April 30, 2020
$
51.7
2.8
0.2
22.9
35.2
(4.3)
108.5
$
April 30, 2020
$
50.8
0.2
2.8
57.0
2.6
The following table summarizes the maturity of our lease liabilities by fiscal year.
April 30, 2020
2021
2022
2023
2024
2025
2026 and beyond
Total undiscounted minimum lease payments
Less: Imputed interest
Lease liabilities
Operating Leases
$
Finance Leases
40.3 $
36.8
34.2
22.7
14.7
19.8
168.5 $
12.0
156.5 $
$
$
2.3
1.7
1.0
0.7
0.3
—
6.0
0.3
5.7
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.
The following table sets forth the weighted average remaining lease term and discount rate.
Weighted average remaining lease term (in years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
April 30, 2020
4.7
3.4
3.1 %
2.9 %
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70
Note 13: 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, 2020, there were 4,781,736 shares available for future
issuance under this plan.
Under the 2010 Equity and Incentive Compensation Plan, we have the option to settle share-based awards by issuing
common shares from treasury, issuing new Company common shares, or issuing a combination of common shares from
treasury and new Company common shares.
Stock Options: Under the 2010 Equity and Incentive Compensation Plan, we granted 193,831 options during 2020 and
granted no stock options during 2019 and 2018. Stock options granted in 2020 vest ratably over a period of three years. 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 fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions for stock options granted in 2020:
Expected volatility (%)
Dividend yield (%)
Risk-free interest rate (%)
Expected life of stock options (years)
2020
20.1 %
2.8 %
1.9 %
6.0
any compensation cost, as the requisite service period for the previous options granted ended on April 30, 2018. The
compensation expense for stock option awards totaled $0.4 for the year ended April 30, 2018, which was included in other
special project costs in the Statement of Consolidated Income. The tax benefit related to the stock option expense was $0.3
and $0.1 for 2020 and 2018, respectively. As of April 30, 2020, we had unrecognized compensation cost of $1.8 related to the
stock options that were granted in 2020.
Cash received from stock option exercises was $7.1 and $3.9 for the years ended April 30, 2020 and 2018, respectively.
There were no stock options exercised in 2019.
Other Equity Awards: The following table is a summary of our restricted shares, deferred stock units, and performance
units.
Outstanding at May 1, 2019
Granted
Converted
Vested
Forfeited
Outstanding at April 30, 2020
Restricted
Shares
and Deferred
Stock Units
Weighted-
Average
Grant Date
Fair Value
Performance
Units
Weighted-
Average
Conversion
Date Fair Value
583,576 $ 118.44
85,154 $
245,945
121.19
168,212
85,154
123.68
(85,154)
(123,714) 119.13
—
(54,277) 117.30
(14,995)
736,684 $ 119.93
153,217 $
123.68
123.68
123.68
—
123.68
123.68
The weighted-average grant date fair value of equity awards other than stock options that vested in 2020, 2019, and 2018 was
$14.7, $17.0, and $17.1, respectively. The vesting date fair value of equity awards other than stock options that vested in
2020, 2019, and 2018 was $14.5, $17.0, and $20.7, respectively. The weighted-average grant date fair value of restricted
shares, deferred stock units, and performance units is the average of the high and the low share price on the date of grant. The
following table summarizes the weighted-average fair values of the equity awards granted.
Restricted
Shares
and Deferred
Stock Units
Weighted-
Average
Grant Date
Fair Value
245,945 $ 121.19
104.33
194,932
126.80
136,127
Performance
Units
168,212 $
85,154
84,051
Weighted-
Average
Conversion
Date Fair Value
123.68
123.68
103.86
Expected volatility was calculated in accordance with the provisions of FASB ASC 718, Compensation – Stock
Compensation, based on consideration of both historical and implied volatilities. The expected life of a stock option
represents the period from the grant date through the expected exercise date of the option. This was calculated using a
simplified method whereby the midpoint between the vesting date and the end of the contractual term is utilized to compute
the expected term.
Year Ended April 30,
2020
2019
2018
The following table is a summary of our stock option activity.
Outstanding at May 1, 2019
Granted
Exercised
Cancelled
Outstanding at April 30, 2020
Exercisable at April 30, 2020
Number of
Stock Options
Weighted-Average
Exercise Price
400,000 $
193,831
(62,750)
(42,026)
489,055 $
314,750 $
113.24
121.93
111.66
120.67
116.25
113.21
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 outstanding and exercisable was $1.0 and $0.8 at
April 30, 2020, respectively, with an average remaining contractual term of 6.5 years and 5.0 years, respectively. The total
intrinsic value of stock options exercised during 2020 and 2018 was $0.2 and $0.6, respectively, and there were no stock
options exercised in 2019. The closing market price of our common stock on the last trading day of 2020 was $114.91 per
share. The stock options granted during 2020 have a weighted-average grant date fair value of $17.82 per option.
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. During 2020, we recognized compensation cost of $1.3, and during 2019, we did not recognize
The restricted shares and deferred stock units granted in 2020 under our new long-term incentive compensation program vest
ratably over a three-year period from date of grant. The remaining restricted shares and deferred stock units generally vest
over four years from the date of grant or upon the attainment of a defined age and years of service, subject to certain retention
requirements. The performance units granted in 2020 vest over three years from the date of grant and are converted to
restricted shares upon vest based on the performance achieved during the service period. During 2019 and 2018, the
performance units granted represented the number of restricted shares received by certain executive officers, subsequent to
year-end, upon conversion of the performance units earned during the one year period.
Note 14: Income Taxes
Income before income taxes is as follows:
Domestic
Foreign
Income before income taxes
Year Ended April 30,
2018
2020
2019
$ 986.7 $ 659.2 $ 828.6
32.4
$ 1,026.7 $ 701.6 $ 861.0
40.0
42.4
71
72
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,
2020
2019
2018
$
$
188.7 $
8.5
42.4
227.9 $
16.0
36.8
277.9
7.9
40.0
7.1
0.6
(0.1)
247.2 $
(73.6)
(0.1)
(19.8)
187.2 $
(802.3)
0.5
(1.6)
(477.6)
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,
2020
21.0 %
—
—
—
—
3.3
—
—
(0.2)
24.1 %
2019
21.0 %
—
(0.5)
2.9
2.4
2.7
—
(2.4)
0.6
26.7 %
2018
30.4 %
(92.0)
3.0
5.5
—
1.9
(3.0)
—
(1.3)
(55.5) %
$ 227.1
$ 250.9
$ 336.8
The income tax expense of $187.2 for 2019 included 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.
U.S. Tax Reform: On December 22, 2017, the U.S. government enacted the Tax 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 2019, we finalized our accounting for the income tax effects of enactment of the Tax 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 Tax 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 Tax 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. During 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, which included rollbacks of
certain provisions of the Tax Act. While these specific rollbacks did not impact us, future legislative actions in response to
COVID-19 could further modify provisions of the Tax Act, and such changes will need to be analyzed for their respective
impacts on our income taxes at that time.
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, 2020 and 2019. 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, 2018 and 2017. The tax years prior to 2017 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 2016 and for the tax years prior to 2013 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
Leases
Other
Total deferred tax liabilities
Deferred tax assets:
Post-employment and other employee benefits
Tax credit and loss carryforwards
Intangible assets
Hedging transactions
Leases
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, less allowance
Net deferred tax liability
April 30,
2020
2019
$ 1,399.7 $ 1,428.3
120.5
—
13.4
$ 1,596.4 $ 1,562.2
151.3
30.3
15.1
$
100.3 $
28.1
16.9
59.5
31.9
37.8
274.5 $
(29.7)
244.8 $
84.9
10.0
17.2
15.6
—
39.4
167.1
(3.5)
163.6
$
$ 1,351.6 $ 1,398.6
$
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 $26.2 during the year, primarily related to the foreign tax credit deferred tax assets
that were determined to not be realizable.
During 2020, we returned $39.7 of international cash to the U.S., primarily driven by a reduction in our capital investment in
certain foreign subsidiaries in conjunction with a restructuring of our international holding and operating entities. No foreign
withholding taxes were applicable. The state income taxes were not significant and have been included in income tax
expense. Deferred income taxes have not been provided on approximately $29.7 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 $13.1, $15.0, and $32.3, of which $10.5, $12.0, and $21.5 would affect the effective tax
rate, if recognized, as of April 30, 2020, 2019, and 2018, respectively. Our accrual for tax-related net interest and penalties
totaled $1.9, $3.3, and $4.0 as of April 30, 2020, 2019, and 2018, respectively. The amount of tax related to net interest and
penalties credited to earnings totaled $0.1 and $0.8 for 2020 and 2019, respectively, and charged to earnings totaled $0.1
during 2018.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated
$2.6, primarily as a result of the expiration of statute of limitation periods.
73
74
A reconciliation of our unrecognized tax benefits is as follows:
Balance at May 1,
Increases:
Current year tax positions
Prior year tax positions
Decreases:
Settlement with tax authorities
Expiration of statute of limitations periods
Balance at April 30,
2020
2019
$ 15.0 $ 32.3 $ 40.4
2018
1.4
0.2
0.9
0.3
1.1
0.5
—
3.5
3.0
6.7
$ 13.1 $ 15.0 $ 32.3
9.0
9.5
Note 15: 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, 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
Reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Balance at April 30, 2020
$
$
$
(43.0) $
—
26.6
—
—
(16.4) $
—
(19.1)
—
(35.5) $
—
(15.0)
—
(50.5) $
(4.4) $
0.5
2.7
(1.2)
(0.5)
(2.9) $
0.4
(49.1)
11.2
(40.4) $
2.1
(190.7)
43.4
(185.6) $
(100.0) $
10.7
9.2
(5.6)
(15.3)
(101.0) $
7.3
(19.1)
2.8
(110.0) $
7.4
(54.8)
10.7
(146.7) $
4.0 $
—
(1.7)
0.5
0.8
3.6 $
—
0.7
(0.2)
4.1 $
—
(0.4)
0.1
3.8 $
(143.4)
11.2
36.8
(6.3)
(15.0)
(116.7)
7.7
(86.6)
13.8
(181.8)
9.5
(260.9)
54.2
(379.0)
(A) The reclassification from accumulated other comprehensive income (loss) to interest expense was related to terminated interest rate
contracts. The current period charge in 2020 and 2019 relates to losses on the interest rate contracts entered into in November 2018
and June 2018 that were terminated in 2020. The current period credit in 2018 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 Tax Act from accumulated other comprehensive income (loss) to retained earnings.
Note 16: 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 and paid
during the second half of 2019. 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, 2020. 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 will 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. During the interim period, the California
Office of Administrative Law approved the proposed regulation on June 3, 2019, and the regulation went into effect on
October 1, 2019. In response to CERT’s objection, the defendants amended their answer to raise the regulation as a complete
defense to the claims. CERT unsuccessfully challenged the defendants’ right to assert the regulation as an affirmative defense
but continues to challenge the validity of the regulation. During the third quarter of 2020, CERT filed several motions
seeking judgment in its favor as a matter of law, and the defendants also filed their own motion. The hearing on the motions
has been pushed back until at least July 22, 2020, due to COVID-19. This past quarter, CERT issued discovery requests
seeking information regarding acrylamide in coffee flavorings, thereby introducing a new theory into the lawsuit, over the
objection of the defendants.
At this stage of the proceedings, prior to and without knowing whether the regulation will stand as a defense or 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, 2020, 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 earlier trial court rulings
should the regulation be held invalid. 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 17: Common Shares
Voting: The Amended Articles of Incorporation (“Articles”) provide that each holder of a common share outstanding is
entitled to one vote on each matter submitted to a vote of the shareholders, except for the following specific matters:
•
•
any matter that relates to or would result in the dissolution or liquidation of the Company;
the adoption of any amendment to the Articles or Amended Regulations, or the adoption of amended Articles, other
than the adoption of any amendment or amended Articles that increases the number of votes to which holders of our
common shares are entitled or expands the matters to which time-phased voting applies;
75
76
•
•
•
•
•
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, which expired on
June 25, 2018;
any matter relating to any stock option plan, stock purchase plan, executive compensation plan, executive benefit
plan, or other similar plan, arrangement, or agreement;
the adoption of any agreement or plan of or for the merger, consolidation, or majority share acquisition of us or any
of our subsidiaries with or into any other person, whether domestic or foreign, corporate or noncorporate, or the
authorization of the lease, sale, exchange, transfer, or other disposition of all, or substantially all, of our assets;
any matter submitted to our shareholders pursuant to Article Fifth (which relates to procedures applicable to certain
business combinations) or Article Seventh (which relates to procedures applicable to certain proposed acquisitions
of specified percentages of our outstanding common shares) of the Articles, as they may be further amended, or any
issuance of our common shares for which shareholder approval is required by applicable stock exchange rules; and
any matter relating to the issuance of our common shares or the repurchase of our common shares that the Board
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: We did not repurchase any common shares under a repurchase plan authorized by the Board during
2020 and 2019. At April 30, 2020, approximately 3.6 million common shares remain available for repurchase pursuant to the
Board’s authorizations.
Note 18: Quarterly Results of Operations (Unaudited)
The following tables summarize the unaudited quarterly results of operations for the years ended April 30, 2020 and 2019.
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, 2020 (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, 2020, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information.
None.
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
Second Quarter
2020
Third Quarter
First Quarter
$ 1,778.9 $
699.6
154.6
1,957.8 $
754.0
211.2
1,972.3 $
760.0
187.4
Fourth Quarter
2,092.0
788.4
226.3
$
1.36 $
1.36
0.88
1.85 $
1.85
0.88
1.64 $
1.64
0.88
1.98
1.98
0.88
Second Quarter
2019
Third Quarter
First Quarter
$ 1,902.5 $
678.2
133.0
2,021.5 $
771.3
188.5
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
1.07 $
1.07
0.85
0.63
0.63
0.85
(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.
77
78
Item 10. Directors, Executive Officers and Corporate Governance.
Item 15.
Exhibits and Financial Statement Schedules.
PART III
PART IV
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 19, 2020. 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
(investors.jmsmucker.com/governance-documents).
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 19, 2020.
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 19, 2020.
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 19, 2020.
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 19, 2020.
(a)(1)
Financial Statements:
See the Index to Financial Statements on page 36 of this Annual Report on Form 10-K.
(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
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Exhibit Description
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 (as Amended January 17, 2020)
Description of Capital Stock
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
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
Third Supplemental Indenture, dated as of March 9, 2020, between the Company 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
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*
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*
79
80
Exhibit
Number
10.46
10.47
10.48
10.49
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
Amendment No. 1 to Credit Agreement dated as of November 14, 2019, to the 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 Tucker H. Marshall 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
104
The cover page of this Annual Report on Form 10-K for the year ended April 30, 2020, formatted in Inline
XBRL
* Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
Exhibit
Number
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
Form of Special One-Time Grant of Deferred Stock Units Agreement*
Exhibit Description
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 Deferred Stock Units Agreement*
Form of Special One-Time Grant of Restricted Stock Agreement (5-year Cliff Vest)*
Form of Special One-Time Grant of Restricted Stock Agreement (4-year Cliff Vest)*
Form of Special One-Time Grant of Restricted Stock Agreement (3-year Cliff Vest)*
Form of Special One-Time Grant of Restricted Stock Agreement (Age 60 Vest)*
Form of Performance Units Agreement*
Form of Nonstatutory Stock Option Agreement*
Form of Nonstatutory Stock Option Agreement*
Form of Nonstatutory Stock Option Agreement between the Company and the Optionee (three-year vesting)*
Employment Offer, dated February 28, 2020, between the Company and John P. Brase*
Separation Agreement, effective as of January 4, 2020, between the Company and Kevin G. Jackson*
Separation Agreement, effective as of January 10, 2020, between the Company and David J. Lemmon*
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*
Amendment No. 2 to The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement
Plan, dated as of May 1, 2017*
The J. M. Smucker Company Restoration Plan, Amended and Restated Effective January 1, 2013*
10.36 Amendment No. 1 to The J. M. Smucker Company Restoration Plan, dated as of May 1, 2015*
10.37 Amendment No. 2 to The J. M. Smucker Company Restoration Plan, dated as of December 31, 2016*
10.38 Amendment No. 3 to The J. M. Smucker Company Restoration Plan, dated as of January 1, 2017*
10.39
The J. M. Smucker Company Executive Severance Plan*
10.40
10.41
10.42
10.43
10.44
10.45
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
81
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 19, 2020
The J. M. Smucker Company
/s/ Tucker H. Marshall
By: Tucker H. Marshall
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/ Tucker H. Marshall
Tucker H. Marshall
*
Timothy P. Smucker
*
Richard K. Smucker
*
Kathryn W. Dindo
*
Paul J. Dolan
*
Jay L. Henderson
*
Gary A. Oatey
*
Kirk L. Perry
*
Sandra Pianalto
*
Nancy Lopez Russell
*
Alex Shumate
*
Dawn C. Willoughby
President and Chief Executive Officer and Director
(Principal Executive Officer)
June 19, 2020
Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
June 19, 2020
Chairman Emeritus
Executive Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
June 19, 2020
*
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 19, 2020
By:
/s/ Jeannette L. Knudsen
Jeannette L. Knudsen
Attorney-in-Fact
83
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DIRECTORS AND ELECTED OFFICERS
DIRECTORS
Kathryn W. DindoA
Retired Vice President and
Chief Risk Officer
FirstEnergy Corp.
Akron, Ohio
Kirk L. PerryE
President, Brand Solutions
Google Inc.
Mountain View, California
Mark T. Smucker
President and Chief Executive Officer
The J. M. Smucker Company
Paul J. DolanE
Chairman and Chief Executive Officer
Cleveland Indians
Cleveland, Ohio
Sandra PianaltoA
Retired President and
Chief Executive Officer
Federal Reserve Bank of Cleveland
Cleveland, Ohio
Jay L. HendersonA
Retired Vice Chairman, Client Service
PricewaterhouseCoopers LLP
Chicago, Illinois
Nancy Lopez RussellG
Founder
Nancy Lopez Golf Company
Palm City, Florida
Gary A. OateyE
Executive Chairman
Oatey Co.
Cleveland, Ohio
Alex ShumateG
Managing Partner, North America
Squire Patton Boggs (US) LLP
Columbus, Ohio
Richard K. Smucker
Executive Chairman
The J. M. Smucker Company
Timothy P. Smucker
Chairman Emeritus
The J. M. Smucker Company
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
ELECTED OFFICERS
Mark T. Smucker
President and Chief Executive Officer
Richard K. Smucker
Executive Chairman
Mark R. Belgya
Vice Chair
John P. Brase
Chief Operating Officer
J. Randal Day
Senior Vice President, Operations
Robert D. Ferguson
Senior Vice President and General
Manager, Pet Food and Pet Snacks
Tina R. Floyd
Senior Vice President and General
Manager, Consumer Foods
Julia L. Sabin
Vice President, Government Relations
and Corporate Sustainability
Amy C. Held
Chief Strategy and International Officer
Joseph Stanziano
Senior Vice President and General
Manager, Coffee
Jeannette L. Knudsen
Chief Legal and Compliance Officer
and Secretary
Tucker H. Marshall
Chief Financial Officer
Jill R. Penrose
Chief People and Administrative Officer
Geoff E. Tanner
Chief Marketing and Commercial
Officer
Lindsey A. Tomaszewski
Senior Vice President,
Human Resources
OUR LOCATIONS
CORPORATE HEADQUARTERS
Orrville, Ohio
CANADIAN HEADQUARTERS
Markham, Ontario, Canada
MANUFACTURING LOCATIONS
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
Oxnard, California
Ripon, Wisconsin
Scottsville, Kentucky
Seattle, Washington
Sherbrooke, Quebec, Canada
Suffolk, Virginia
Topeka, Kansas
9 5
FISCAL YEAR 2020 ANNUAL REPORT SHAREHOLDER INFORMATION
CORPORATE OFFICE
The J. M. Smucker Company
One Strawberry Lane
Orrville, Ohio 44667
Telephone: (330) 682-3000
STOCK LISTING
Our common shares are listed on the New York Stock
Exchange — ticker symbol SJM.
CORPORATE WEBSITE
To learn more about The J. M. Smucker Company,
visit jmsmucker.com.
ANNUAL MEETING
Due to the COVID-19 pandemic, the annual meeting will
be held virtually at 10:00 a.m. Eastern Time, August 19,
2020, at www.virtualshareholdermeeting.com/SJM2020.
CORPORATE NEWS AND REPORTS
Corporate news releases, annual reports and Securities
and Exchange Commission filings, including Forms 10-K,
10-Q, and 8-K, are available free of charge on our website,
investors.jmsmucker.com.
They are also available without cost to shareholders who
submit a written request to:
The J. M. Smucker Company
Attention: Corporate Secretary
One Strawberry Lane
Orrville, Ohio 44667
CERTIFICATIONS
Our Chief Executive Officer has certified to the New York
Stock Exchange that he is not aware of any violation by
the Company of the New York Stock Exchange’s corporate
governance listing standards. We have also filed with the
Securities and Exchange Commission certain certifications
relating to the quality of our public disclosures. These
certifications are filed as exhibits to our Annual Report
on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Annual Report includes certain forward-looking
statements that are based on current expectations
and are subject to a number of risks and uncertainties.
Please reference “Forward-Looking Statements” in the
“Management’s Discussion and Analysis” section.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
Akron, Ohio
DIVIDENDS
Our Board of Directors typically declares a cash dividend
each quarter. Dividends are generally payable on the first
business day of March, June, September and December.
The record date is approximately two weeks before the
payment date. Our dividend disbursement agent is
Computershare Investor Services, LLC.
SHAREHOLDER SERVICES
Our transfer agent and registrar, Computershare Investor
Services, LLC, is responsible for assisting registered
shareholders with a variety of matters, including:
• Shareholder investment program (CIPSM)
– Direct purchase of our common shares
– Dividend reinvestment
– Automatic monthly cash investments
• Book-entry share ownership
• Share transfer matters (including name changes,
gifting and inheritances)
• Direct deposit of dividend payments
• Nonreceipt of dividend checks
• Lost share certificates
• Changes of address
• Online shareholder account access
• Form 1099 income inquiries (including requests for
duplicate copies)
Shareholders may contact Shareholder Services at our
corporate offices regarding other shareholder inquiries.
TRANSFER AGENT AND REGISTRAR
Computershare
P.O. Box 505000
Louisville, KY 40233
Telephone: (800) 456-1169
Telephone outside U.S., Canada and Puerto Rico:
(312) 360-5254
Website: computershare.com/investor
The J. M. Smucker Company, or its subsidiaries, is the
owner of all trademarks, except for the following, which
are used under license: Carnation® is a trademark of
Société des Produits Nestlé S.A.; Dunkin’ ® 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 II LLC.
One Strawberry Lane
Orrville, Ohio 44667
330-682-3000
jmsmucker.com