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EX-32 - EX-32 - J M SMUCKER Cosjm2016731-10qex32.htm
EX-31.2 - EX-31.2 - J M SMUCKER Cosjm2016731-10qex312.htm
EX-31.1 - EX-31.1 - J M SMUCKER Cosjm2016731-10qex311.htm
EX-12.1 - EX-12.1 - J M SMUCKER Cosjm2016731-10qex121.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________ 
FORM 10-Q
___________________________________________________ 
ý
QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-5111
 ___________________________________________________
THE J. M. SMUCKER COMPANY
(Exact name of registrant as specified in its charter)
___________________________________________________ 
Ohio
34-0538550
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
One Strawberry Lane
 
Orrville, Ohio
44667-0280
(Address of principal executive offices)
(Zip code)
 
Registrant’s telephone number, including area code: (330) 682-3000
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 ___________________________________________________
 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 at least the past 90 days.  Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller Reporting Company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  ý
The Company had 116,417,978 common shares outstanding on August 24, 2016.

 
 
 


TABLE OF CONTENTS
 

1



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
 
 
Three Months Ended July 31,
Dollars in millions, except per share data
2016
 
2015
Net sales
$
1,815.8

 
$
1,952.0

Cost of products sold
1,093.1

 
1,223.3

Gross Profit
722.7

 
728.7

Selling, distribution, and administrative expenses
356.0

 
387.6

Amortization
51.7

 
53.0

Other special project costs (A)
22.2

 
22.9

Other operating income – net
(1.0
)
 
(1.9
)
Operating Income
293.8

 
267.1

Interest expense – net
(41.5
)
 
(44.4
)
Other income – net
1.1

 
0.1

Income Before Income Taxes
253.4

 
222.8

Income taxes
83.4

 
86.4

Net Income
$
170.0

 
$
136.4

Earnings per common share:
 
 
 
Net Income
$
1.46

 
$
1.14

Net Income – Assuming Dilution
$
1.46

 
$
1.14

Dividends Declared per Common Share
$
0.75

 
$
0.67

 
(A)
Other special project costs include merger and integration and restructuring costs. For more information, see Note 4: Integration and Restructuring Costs.
See notes to unaudited condensed consolidated financial statements.

2



THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended July 31,
Dollars in millions
2016
 
2015
Net income
$
170.0

 
$
136.4

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
(15.0
)
 
(25.5
)
Cash flow hedging derivative activity, net of tax
0.1

 
0.1

Pension and other postretirement benefit plans activity, net of tax
17.2

 
4.5

Available-for-sale securities activity, net of tax
0.2

 
(0.2
)
Total Other Comprehensive Income (Loss)
2.5

 
(21.1
)
Comprehensive Income
$
172.5

 
$
115.3

See notes to unaudited condensed consolidated financial statements.

3



THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
July 31, 2016
 
April 30, 2016
Dollars in millions
 
 
 
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
109.6

 
$
109.8

Trade receivables, less allowance for doubtful accounts
523.0

 
450.1

Inventories:
 
 
 
Finished products
622.2

 
560.0

Raw materials
392.4

 
339.4

Total Inventory
1,014.6

 
899.4

Other current assets
93.5

 
114.1

Total Current Assets
1,740.7

 
1,573.4

Property, Plant, and Equipment
 
 
 
Land and land improvements
115.0

 
114.6

Buildings and fixtures
742.2

 
727.7

Machinery and equipment
1,893.7

 
1,870.7

Construction in progress
73.0

 
91.3

Gross Property, Plant, and Equipment
2,823.9

 
2,804.3

Accumulated depreciation
(1,225.4
)
 
(1,176.6
)
Total Property, Plant, and Equipment
1,598.5

 
1,627.7

Other Noncurrent Assets
 
 
 
Goodwill
6,084.6

 
6,091.1

Other intangible assets – net
6,440.5

 
6,494.4

Other noncurrent assets
197.5

 
197.5

Total Other Noncurrent Assets
12,722.6

 
12,783.0

Total Assets
$
16,061.8

 
$
15,984.1

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
 
 
 
Accounts payable
$
452.0

 
$
459.4

Accrued trade marketing and merchandising
176.3

 
112.3

Short-term borrowings
306.0

 
284.0

Other current liabilities
354.1

 
357.3

Total Current Liabilities
1,288.4

 
1,213.0

Noncurrent Liabilities
 
 
 
Long-term debt
5,045.7

 
5,146.0

Deferred income taxes
2,245.1

 
2,230.3

Other noncurrent liabilities
386.7

 
386.3

Total Noncurrent Liabilities
7,677.5

 
7,762.6

Total Liabilities
8,965.9

 
8,975.6

Shareholders’ Equity
 
 
 
Common shares
29.1

 
29.1

Additional capital
5,869.2

 
5,860.1

Retained income
1,343.5

 
1,267.7

Accumulated other comprehensive loss
(145.9
)
 
(148.4
)
Total Shareholders’ Equity
7,095.9

 
7,008.5

Total Liabilities and Shareholders’ Equity
$
16,061.8

 
$
15,984.1

See notes to unaudited condensed consolidated financial statements.

4



THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Three Months Ended July 31,
Dollars in millions
2016
 
2015
Operating Activities
 
 
 
Net income
$
170.0

 
$
136.4

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Depreciation
54.0

 
55.7

Amortization
51.7

 
53.0

Share-based compensation expense
8.1

 
7.7

Loss on disposal of assets – net
0.5

 
1.3

Other noncash adjustments
0.2

 
(3.5
)
Defined benefit pension contributions
(0.8
)
 
(0.9
)
Changes in assets and liabilities, net of effect from businesses acquired:
 
 
 
Trade receivables
(74.3
)
 
(80.8
)
Inventories
(117.3
)
 
8.4

Other current assets
20.1

 
13.5

Accounts payable
18.2

 
(37.8
)
Accrued liabilities
34.7

 
21.1

Income and other taxes
45.1

 
127.9

Other – net
28.7

 
5.0

Net Cash Provided by Operating Activities
238.9

 
307.0

Investing Activities
 
 
 
Business acquired, net of cash acquired

 
7.9

Additions to property, plant, and equipment
(50.2
)
 
(53.0
)
Other – net
(12.3
)
 
7.0

Net Cash Used for Investing Activities
(62.5
)
 
(38.1
)
Financing Activities
 
 
 
Short-term borrowings – net
22.0

 
76.6

Repayments of long-term debt
(100.0
)
 
(250.0
)
Quarterly dividends paid
(77.8
)
 
(76.4
)
Purchase of treasury shares
(18.1
)
 
(6.9
)
Other – net
0.7

 
0.5

Net Cash Used for Financing Activities
(173.2
)
 
(256.2
)
Effect of exchange rate changes on cash
(3.4
)
 
(4.7
)
Net (decrease) increase in cash and cash equivalents
(0.2
)
 
8.0

Cash and cash equivalents at beginning of period
109.8

 
125.6

Cash and Cash Equivalents at End of Period
$
109.6

 
$
133.6

( ) Denotes use of cash
See notes to unaudited condensed consolidated financial statements.

5



THE J. M. SMUCKER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted, except per share data)
Note 1: Basis of Presentation
The unaudited interim condensed consolidated financial statements of The J. M. Smucker Company (“Company,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included.
Operating results for the three months ended July 31, 2016, are not necessarily indicative of the results that may be expected for the year ending April 30, 2017. For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2016.
Note 2: Recently Issued Accounting Standards
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for us on May 1, 2018, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the impact the application of ASU 2016-15 will have on our financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for us on May 1, 2017, but we have elected to early adopt, as permitted. Effective May 1, 2016, we reclassified the excess tax benefits in historical periods on the Condensed Statements of Consolidated Cash Flows from financing to operating activities. In addition, we have recorded the excess tax benefits or deficiencies within income taxes in the Condensed Statements of Consolidated Income on a prospective basis. The impact of adopting ASU 2016-09 on May 1, 2016, had an immaterial impact on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 will be effective for us on May 1, 2019, and will require a modified retrospective application for leases existing at, or entered into after, the beginning of the earliest comparative period presented and exclude any leases that expired before the date of initial application. We are currently evaluating the impact the application of ASU 2016-02 will have on our financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires either retrospective application to each prior reporting period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which extends the standard effective date by one year. As a result of this issuance, the standard will be effective for us on May 1, 2018, with the option to early adopt at the original effective date of May 1, 2017. We have performed a preliminary review of the new guidance as compared to our current accounting policies, and a contract review is in process. Based on our findings to date, we do not expect the standard to have a material impact on our results of operations or financial position. During 2017, we plan to finalize our review and determine our date of adoption.
Note 3: Acquisition
On March 23, 2015, we completed the acquisition of Big Heart Pet Brands (“Big Heart”), a leading producer, distributor, and marketer of premium-quality, branded pet food and pet snacks in the U.S., through the acquisition of Blue Acquisition Group, Inc. (“BAG”), Big Heart’s parent company. As a result of the acquisition, the assets and liabilities of BAG are now held by the Company.

6



The total consideration paid in connection with the acquisition was $5.9 billion, which included the issuance of 17.9 million of our common shares to BAG’s shareholders, valued at $2.0 billion based on the average stock price of our common shares on March 23, 2015. After the closing of the transaction, we had approximately 120.0 million common shares outstanding. We assumed $2.6 billion in debt and paid an additional $1.2 billion in cash, net of a working capital adjustment. As part of the transaction, new debt of $5.5 billion was borrowed, as discussed in Note 8: Debt and Financing Arrangements.
The final Big Heart purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determined the estimated fair values based on independent appraisals, discounted cash flow analyses, quoted market prices, and estimates made by management. The purchase price allocation included total intangible assets of $3.8 billion. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired and, as a result, the excess was allocated to goodwill. We recognized a total of $3.0 billion of goodwill, representing the value we expect to achieve through the implementation of operational synergies and growth opportunities across our segments. Goodwill was allocated across all reportable segments based on the synergies anticipated to be achieved by each individual reporting unit as a result of the acquisition. Of the total goodwill, $70.4 was deductible for tax purposes.
Note 4: Integration and Restructuring Costs
Integration Costs: Total one-time costs related to the Big Heart acquisition are anticipated to be approximately $275.0, of which approximately $50.0 are expected to be noncash charges. These costs are anticipated to be incurred through 2018 and primarily consist of employee-related costs, outside service and consulting costs, and other costs related to the acquisition. Employee-related costs include severance, retention bonuses, and relocation costs. Severance costs and retention bonuses are recognized over the estimated future service period of the affected employees and the remainder is expensed as incurred. The obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheets. Other costs include professional fees, information systems costs, and other miscellaneous expenditures associated with the integration, which are expensed as incurred. Of the total anticipated one-time costs, we expect to incur $120.0$100.0, and $55.0 in employee-related costs, outside service and consulting costs, and other costs, respectively.
We incurred costs of $20.2 and $24.8 during the three months ended July 31, 2016 and 2015, respectively, related to the integration of Big Heart, and total costs from the date of the acquisition were $201.4 as of July 31, 2016. The majority of these charges were reported in other special project costs in the Condensed Statements of Consolidated Income and are not allocated to segment profit. Total one-time costs related to the acquisition include $72.7$78.2, and $50.5 of employee-related costs, outside service and consulting costs, and other costs, respectively, including noncash charges of $30.2, primarily consisting of share-based compensation and accelerated depreciation. During the three months ended July 31, 2016, we incurred $6.9$6.1, and $7.2 of employee-related costs, outside service and consulting costs, and other costs, respectively, including noncash charges of $5.6. The obligation related to severance costs and retention bonuses was $4.9 and $13.4 at July 31, 2016 and April 30, 2016, respectively.
Restructuring Costs: In addition to the integration costs discussed above, an organization optimization program was approved by the Board of Directors during the fourth quarter of 2016 as part of our ongoing efforts to reduce costs, integrate, and optimize the combined organization. Total restructuring costs are expected to be approximately $40.0, of which approximately half represents employee-related costs, and the remainder primarily consists of site preparation, equipment relocation, and production start-up costs. Included in the total restructuring costs are approximately $8.0 of noncash charges related to accelerated depreciation. In addition, we expect to invest approximately $15.0 to $17.0 in capital expenditures.
During the three months ended July 31, 2016, we incurred $4.0, $1.1, and $0.9 of employee-related costs, outside service and consulting costs, and other costs, respectively, including noncash charges of $0.9. In 2016, we incurred employee-related costs of $1.3. Employee separation costs primarily consist of severance costs and retention bonuses. Severance costs and retention bonuses are recognized over the estimated future service period of the affected employees and the remainder is expensed as incurred. The obligation related to severance costs and retention bonuses was $3.5 and $1.3 at July 31, 2016 and April 30, 2016, respectively. The remaining costs are anticipated to be recognized through 2018, with the majority of the costs expected to be recognized by the end of 2017. Upon completion, the restructuring plan will result in a reduction of approximately 125 full-time positions.
As part of this program, we will discontinue the production of coffee at our Harahan, Louisiana, facility and consolidate all roast and ground coffee production into one of our facilities in New Orleans, Louisiana, which we expect to complete by December 2017. Additionally, we will exit two leased facilities in Livermore, California, and consolidate all ancient grains and pasta production into our facility in Chico, California, which we expect to complete by January 2017.

7



Note 5: Divestiture
On December 31, 2015, we sold our U.S. canned milk brands and operations to Eagle Family Foods Group LLC, a subsidiary of funds affiliated with Kelso & Company. The transaction included canned milk products that were primarily sold in U.S. retail and foodservice channels under the Eagle Brand® and Magnolia® brands, along with other branded and private label trade names, with annual net sales of approximately $200.0. Our manufacturing facilities in El Paso, Texas, and Seneca, Missouri, were included in the transaction, but our canned milk business in Canada was not included.

The operating results for this business were primarily included in the U.S. Retail Consumer Foods segment prior to the sale on December 31, 2015. We received proceeds from the divestiture of $193.7, which were net of transaction costs and a working capital adjustment. Upon completion of the transaction, we recognized a pre-tax gain of $25.3 in 2016.
Note 6: Reportable Segments
We operate in one industry: the manufacturing and marketing of food and beverage products. We have three reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, and U.S. Retail Pet Foods. Within our segment results, International and Foodservice represents a combination of the strategic business areas not included in the U.S. retail market segments. The U.S. Retail Coffee segment primarily includes the domestic sales of Folgers®, Dunkin’ Donuts®, and Café Bustelo® branded coffee; the U.S. Retail Consumer Foods segment primarily includes the domestic sales of Jif®, Smucker’s®, Crisco®, and Pillsbury® branded products; and the U.S. Retail Pet Foods segment primarily includes the domestic sales of Meow Mix®, Milk-Bone®, Natural Balance®, Kibbles ’n Bits®, 9Lives®, Pup-Peroni®, Nature’s Recipe®and Gravy Train® branded products. International and Foodservice is comprised of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health care operators).
Segment profit represents net sales, less direct and allocable operating expenses, and is consistent with the way in which we manage our segments. However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below as segment profit excludes certain expenses such as corporate administrative expenses, unallocated gains and losses on commodity and foreign currency exchange derivative activities, and amortization expense related to intangible assets, including any related impairment charges. Effective May 1, 2016, the segment profit calculation was revised to exclude amortization expense related to intangible assets as we believe that excluding amortization expense related to intangible assets from segment operating results is more reflective of our operating performance and the way in which we manage our business.
Consistent with prior periods, commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and 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.
Prior year segment results have been modified to conform to the revised segment profit presentation excluding amortization expense related to intangible assets.

8



 
Three Months Ended July 31,
 
2016
 
2015
Net sales:
 
 
 
U.S. Retail Coffee
$
513.3

 
$
565.0

U.S. Retail Consumer Foods
537.0

 
582.2

U.S. Retail Pet Foods
519.5

 
549.9

International and Foodservice
246.0

 
254.9

Total net sales
$
1,815.8

 
$
1,952.0

Segment profit:
 
 
 
U.S. Retail Coffee
$
173.8

 
$
173.8

U.S. Retail Consumer Foods
111.4

 
119.4

U.S. Retail Pet Foods
122.2

 
116.8

International and Foodservice
39.5

 
36.1

Total segment profit
$
446.9

 
$
446.1

Amortization
(51.7
)
 
(53.0
)
Interest expense – net
(41.5
)
 
(44.4
)
Unallocated derivative gains (losses)
7.7

 
(10.0
)
Cost of products sold – special project costs (A)
(4.0
)
 
(3.1
)
Other special project costs (A)
(22.2
)
 
(22.9
)
Corporate administrative expenses
(82.9
)
 
(90.0
)
Other income – net
1.1

 
0.1

Income before income taxes
$
253.4

 
$
222.8

(A)
Special project costs include merger and integration and restructuring costs. For more information, see Note 4: Integration and Restructuring Costs.

Note 7: Earnings per Share
The following table sets forth the computation of net income per common share and net income per common share – assuming dilution under the two-class method.
 
Three Months Ended July 31,
 
2016
 
2015
Net income
$
170.0

 
$
136.4

Less: Net income allocated to participating securities
0.8

 
0.6

Net income allocated to common stockholders
$
169.2

 
$
135.8

Weighted-average common shares outstanding
115,805,073

 
119,089,757

Add: Dilutive effect of stock options
141,056

 
13,205

Weighted-average common shares outstanding – assuming dilution
115,946,129

 
119,102,962

Net income per common share
$
1.46

 
$
1.14

Net income per common share – assuming dilution
$
1.46

 
$
1.14


9



Note 8: Debt and Financing Arrangements
Long-term debt consists of the following:
 
July 31, 2016
 
April 30, 2016
 
Principal
Outstanding
 
Carrying
Amount (A)
 
Principal
Outstanding
 
Carrying
Amount (A)
1.75% Senior Notes due March 15, 2018
$
500.0

 
$
498.2

 
$
500.0

 
$
498.0

2.50% Senior Notes due March 15, 2020
500.0

 
495.7

 
500.0

 
495.5

3.50% Senior Notes due October 15, 2021
750.0

 
787.7

 
750.0

 
789.4

3.00% Senior Notes due March 15, 2022
400.0

 
396.1

 
400.0

 
395.9

3.50% Senior Notes due March 15, 2025
1,000.0

 
992.9

 
1,000.0

 
992.7

4.25% Senior Notes due March 15, 2035
650.0

 
642.4

 
650.0

 
642.2

4.38% Senior Notes due March 15, 2045
600.0

 
584.5

 
600.0

 
584.4

Term Loan Credit Agreement due March 23, 2020
650.0

 
648.2

 
750.0

 
747.9

Total long-term debt
$
5,050.0

 
$
5,045.7

 
$
5,150.0

 
$
5,146.0

 
(A)
Represents the carrying amount included in the Condensed Consolidated Balance Sheets, which includes the impact of interest rate swaps, offering discounts, and capitalized debt issuance costs.
In March 2015, we entered into a senior unsecured delayed-draw Term Loan Credit Agreement (“Term Loan”) with a syndicate of banks and an available commitment amount of $1.8 billion. Borrowings under the Term Loan bear interest on the prevailing U.S. Prime Rate or London Interbank Offered Rate (“LIBOR”), based on our election, and is payable either on a quarterly basis or at the end of the borrowing term. The weighted-average interest rate on the Term Loan at July 31, 2016, was 1.74 percent. The Term Loan requires quarterly amortization payments of 2.50 percent of the original principal amount, starting in the third quarter of 2016. Voluntary prepayments are permitted without premium or penalty and are applied to the schedule of required quarterly minimum payment obligations in direct order of maturity. As of July 31, 2016, we have prepaid $1.1 billion on the Term Loan to date, including $100.0 in the first quarter of 2017, and therefore no additional payments are required until final maturity of the loan agreement on March 23, 2020.
Also in March 2015, we completed an offering of $3.7 billion in Senior Notes due beginning March 15, 2018 through March 15, 2045. The proceeds from the offering, along with the Term Loan, were used to partially finance the Big Heart acquisition, pay off the debt assumed as part of the acquisition, and prepay our privately placed Senior Notes.
All of our Senior Notes outstanding at July 31, 2016, are unsecured and interest is paid semiannually. There are no required scheduled principal payments on our Senior Notes. We may prepay at any time all or part of the Senior Notes at 100 percent of the principal amount thereof, together with the accrued and unpaid interest, and any applicable make-whole amount.
During 2014, we entered into an interest rate swap designated as a fair value hedge of the 3.50 percent Senior Notes due October 15, 2021, which was subsequently terminated in 2015. At July 31, 2016, the remaining benefit of $42.0 resulting from the termination was recorded as an increase in the long-term debt balance and will be recognized ratably as a reduction to future interest expense over the remaining life of the related debt. For additional information, see Note 10: Derivative Financial Instruments.
We have available a $1.5 billion revolving credit facility with a group of 11 banks that matures in September 2018. Borrowings under the revolving credit facility bear interest based on the prevailing U.S. Prime Rate, Canadian Base Rate, LIBOR, or Canadian Dealer Offered Rate, based on our election. Interest is payable either on a quarterly basis or at the end of the borrowing term. At July 31, 2016 and April 30, 2016, we did not have a balance outstanding under the revolving credit facility.
We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $1.0 billion at any time. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding. Commercial paper will be used as a continuing source of short-term financing for general corporate purposes. As of July 31, 2016 and April 30, 2016, we had $306.0 and $284.0 of short-term borrowings outstanding, respectively, all of which were issued under our commercial paper program at a weighted-average interest rate of 0.65 percent.
Interest paid totaled $3.6 and $7.2 for the three months ended July 31, 2016 and 2015, respectively. This differs from interest expense due to the timing of payments, amortization of fair value swap adjustments, amortization of debt issuance costs, and capitalized interest.

10



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
The components of our net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below.
 
Three Months Ended July 31,
 
Defined Benefit Pension Plans
 
Other Postretirement Benefits
 
2016
 
2015
 
2016
 
2015
Service cost
$
4.1

 
$
4.7

 
$
0.6

 
$
0.6

Interest cost
6.7

 
7.0

 
0.7

 
0.7

Expected return on plan assets
(7.3
)
 
(8.4
)
 

 

Recognized net actuarial loss
3.7

 
2.7

 

 

Prior service cost (credit)
0.3

 
0.2

 
(0.4
)
 
(0.3
)
Curtailment gain

 
(3.7
)
 

 

Settlement loss
0.1

 

 

 

Net periodic benefit cost
$
7.6

 
$
2.5

 
$
0.9

 
$
1.0


During the first quarter of 2017, we approved the harmonization of our retirement plans and, as a result, will freeze our non-union U.S. defined benefit pension plans. The amendments resulted in an immaterial net settlement loss during the three months ended July 31, 2016, and a decrease in accumulated other comprehensive loss of $25.2 at July 31, 2016. We anticipate future savings to be realized as a result of the plan changes, which will be complete by December 31, 2017.
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 commodity instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
Foreign Currency Exchange Rate Hedging: We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment.
Interest Rate Hedging: We utilize derivative instruments to manage changes in the fair value of our debt. Interest rate swaps mitigate the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the swap would be recognized at fair value on the balance sheet and changes in the fair value would be recognized in interest expense. Generally, changes in the fair value of the derivative are equal to changes in the fair value of the underlying debt and have no impact on earnings.

11



In 2015, we terminated an interest rate swap on the 3.50 percent Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest. The gain on termination was deferred and is being recognized over the remaining life of the underlying debt as a reduction of future interest expense. To date, we have recognized $11.5 of the deferred amount, of which $1.9 was recognized during the three months ended July 31, 2016. The remaining gain will be recognized as follows: $5.7 through the remainder of 2017, $7.8 in 2018, $8.0 in 2019, $8.1 in 2020, $8.4 in 2021, and $4.0 in 2022. For additional information, see Note 8: Debt and Financing Arrangements.
The following tables set forth the gross fair value amounts of derivative instruments recognized in the Condensed Consolidated Balance Sheets.
 
July 31, 2016
 
Other
Current
Assets
 
Other
Current
Liabilities
 
Other
Noncurrent
Assets
 
Other
Noncurrent
Liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts
$
20.5

 
$
22.2

 
$
0.4

 
$
0.8

Foreign currency exchange contracts
1.2

 
2.1

 

 

Total derivative instruments
$
21.7

 
$
24.3

 
$
0.4

 
$
0.8

 
April 30, 2016
 
Other
Current
Assets
 
Other
Current
Liabilities
 
Other
Noncurrent
Assets
 
Other
Noncurrent
Liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts
$
20.3

 
$
14.1

 
$
2.0

 
$
1.2

Foreign currency exchange contracts
0.2

 
8.9

 
0.3

 
0.4

Total derivative instruments
$
20.5

 
$
23.0

 
$
2.3

 
$
1.6

We have elected to not offset fair value amounts recognized for our exchange-traded commodity derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of our open positions. At July 31, 2016 and April 30, 2016, we maintained cash margin account balances of $15.8 and $3.4, respectively, included in other current assets in the Condensed Consolidated Balance Sheets. The change in the cash margin account balances is included in other – net, investing activities in the Condensed Statements of Consolidated Cash Flows. In the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties.
During both of the three month periods ended July 31, 2016 and 2015, we recognized $0.1 in pre-tax losses related to the termination of prior interest rate swaps. Included as a component of accumulated other comprehensive loss at July 31, 2016 and April 30, 2016, were deferred pre-tax losses of $7.5 and $7.6, respectively, related to the termination of these interest rate swaps. The related tax benefit recognized in accumulated other comprehensive loss was $2.7 at both July 31, 2016 and April 30, 2016. Approximately $0.6 of the pre-tax loss will be recognized over the next 12 months.
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as hedging instruments.
 
Three Months Ended July 31,
 
2016
 
2015
Losses on commodity contracts
$
(7.8
)
 
$
(19.0
)
Gains on foreign currency exchange contracts
5.8

 
8.3

Total losses recognized in cost of products sold
$
(2.0
)
 
$
(10.7
)

12



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.
 
Three Months Ended July 31,
 
2016
 
2015
Net losses on mark-to-market valuation of unallocated derivative positions
$
(2.0
)
 
$
(10.7
)
Net losses on derivative positions reclassified to segment operating profit
9.7

 
0.7

Unallocated derivative gains (losses)
$
7.7

 
$
(10.0
)
The net cumulative unallocated derivative losses at July 31, 2016 and April 30, 2016, were $0.7 and $8.4, respectively. As of July 31, 2016, net realized gains of $3.0 were included in cumulative unallocated derivative losses and will be reclassified to segment operating profit when the related inventory is sold.
The following table presents the gross contract notional value of outstanding derivative contracts.
 
July 31, 2016
 
April 30, 2016
Commodity contracts
$
620.2

 
$
545.7

Foreign currency exchange contracts
215.5

 
212.5

Note 11: Other Financial Instruments and Fair Value Measurements
Financial instruments, other than derivatives, that potentially subject us to significant concentrations of credit risk consist principally of cash investments, short-term borrowings, and trade receivables. The carrying value of these financial instruments approximates fair value. Our other financial instruments, with the exception of long-term debt, are recognized at estimated fair value in the Condensed Consolidated Balance Sheets.
The following table provides information on the carrying amounts and fair values of our financial instruments.
 
July 31, 2016
 
April 30, 2016
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Marketable securities and other investments
$
49.1

 
$
49.1

 
$
48.8

 
$
48.8

Derivative financial instruments – net
(3.0
)
 
(3.0
)
 
(1.8
)
 
(1.8
)
Long-term debt
(5,045.7
)
 
(5,374.2
)
 
(5,146.0
)
 
(5,319.9
)
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.

13



The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for our financial instruments.
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at
July 31, 2016
Marketable securities and other investments: (A)
 
 
 
 
 
 
 
Equity mutual funds
$
10.0

 
$

 
$

 
$
10.0

Municipal obligations

 
37.2

 

 
37.2

Money market funds
1.9

 

 

 
1.9

Derivative financial instruments: (B)
 
 
 
 
 
 
 
Commodity contracts – net
3.9

 
(6.0
)
 

 
(2.1
)
Foreign currency exchange contracts – net

 
(0.9
)
 

 
(0.9
)
Long-term debt (C)
(4,723.5
)
 
(650.7
)
 

 
(5,374.2
)
Total financial instruments measured at fair value
$
(4,707.7
)
 
$
(620.4
)
 
$

 
$
(5,328.1
)
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at
April 30, 2016
Marketable securities and other investments: (A)
 
 
 
 
 
 
 
Equity mutual funds
$
9.8

 
$

 
$

 
$
9.8

Municipal obligations

 
37.6

 

 
37.6

Money market funds
1.4

 

 

 
1.4

Derivative financial instruments: (B)
 
 
 
 
 
 
 
Commodity contracts – net
15.0

 
(8.0
)
 

 
7.0

Foreign currency exchange contracts – net
(1.7
)
 
(7.1
)
 

 
(8.8
)
Long-term debt (C)
(4,569.0
)
 
(750.9
)
 

 
(5,319.9
)
Total financial instruments measured at fair value
$
(4,544.5
)
 
$
(728.4
)
 
$

 
$
(5,272.9
)
 
(A)
Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets, municipal obligations valued by a third party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less. Based on the short-term nature of these money market funds, carrying value approximates fair value. As of July 31, 2016, our municipal obligations are scheduled to mature as follows: $1.3 in 2017, $1.0 in 2018, $2.9 in 2019, $2.2 in 2020, and the remaining $29.8 in 2021 and beyond.
(B)
Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets. Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets.
(C)
Long-term debt is comprised of public Senior Notes classified as Level 1 and the Term Loan classified as Level 2. The public Senior Notes are traded in an active secondary market and valued using quoted prices. The value of the Term Loan is based on the net present value of each interest and principal payment calculated, utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of term loan borrowing arrangements. For additional information, see Note 8: Debt and Financing Arrangements.
Note 12: Income Taxes
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax liabilities and assets to be classified as noncurrent on the balance sheet in order to simplify the presentation of deferred income taxes. Although ASU 2015-17 is not effective for us until May 1, 2017, we elected early adoption as of April 30, 2016, and have classified all deferred tax liabilities and assets as noncurrent in our Condensed Consolidated Balance Sheets.
During the three-month period ended July 31, 2016, the effective tax rate varied from the U.S. statutory income tax rate primarily due to the domestic manufacturing deduction, offset by state income taxes. Additionally, the effective tax rate during

14



the three-month period ended July 31, 2015 was impacted by higher deferred state income tax expense, which was a result of state tax law changes.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an additional $5.0, primarily as a result of expiring statute of limitations periods.
Note 13: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, including the reclassification adjustments for items that are reclassified from accumulated other comprehensive loss to net income, are shown below.
 
Foreign
Currency
Translation
Adjustment
 
Unrealized Loss
on Cash Flow
Hedging
Derivatives (A)
 
Pension and
Other
Postretirement
Liabilities (B)
 
Unrealized Gain
on Available-
for-Sale
Securities
 
Accumulated
Other
Comprehensive
Loss
Balance at May 1, 2016
$
(13.1
)
 
$
(4.8
)
 
$
(134.1
)
 
$
3.6

 
$
(148.4
)
Reclassification adjustments

 
0.1

 
5.0

 

 
5.1

Current period (charge) credit
(15.0
)
 

 
21.8

 
0.3

 
7.1

Income tax expense

 

 
(9.6
)
 
(0.1
)
 
(9.7
)
Balance at July 31, 2016
$
(28.1
)
 
$
(4.7
)
 
$
(116.9
)
 
$
3.8

 
$
(145.9
)
 
Foreign
Currency
Translation
Adjustment
 
Unrealized Loss
on Cash Flow
Hedging
Derivatives (A)
 
Pension and
Other
Postretirement
Liabilities (B)
 
Unrealized Gain
on Available-
for-Sale
Securities
 
Accumulated
Other
Comprehensive
Loss
Balance at May 1, 2015
$
(2.3
)
 
$
(5.2
)
 
$
(105.6
)
 
$
3.3

 
$
(109.8
)
Reclassification adjustments

 
0.1

 
4.8

 

 
4.9

Current period (charge) credit
(25.5
)
 

 
1.7

 
(0.3
)
 
(24.1
)
Income tax (expense) benefit

 

 
(2.0
)
 
0.1

 
(1.9
)
Balance at July 31, 2015
$
(27.8
)
 
$
(5.1
)
 
$
(101.1
)
 
$
3.1

 
$
(130.9
)
 
(A)
The reclassification from accumulated other comprehensive loss to interest expense was related to the termination of prior interest rate swaps.
(B)
Amortization of net losses was reclassified from accumulated other comprehensive loss to selling, distribution, and administrative expenses.
Note 14: Contingencies
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings. We cannot predict with certainty the ultimate results of these proceedings or reasonably determine a range of potential loss. Our policy is to accrue costs for contingent liabilities when such liabilities are probable and amounts can be reasonably estimated. Based on the information known to date, we do not believe the final outcome of these proceedings will have a material adverse effect on our financial position, results of operations, or cash flows.
Note 15: Common Shares
The following table sets forth common share information.
 
July 31, 2016
 
April 30, 2016
Common shares authorized
300,000,000

 
300,000,000

Common shares outstanding
116,421,484

 
116,306,894

Treasury shares
30,076,246

 
30,190,836

Share repurchases during the first quarter of 2017 primarily consisted of shares repurchased from stock plan recipients in lieu of cash payments. We did not repurchase any common shares during the first quarter of 2017 under a Board authorized repurchase plan. At July 31, 2016, we had approximately 6.6 million common shares available for repurchase pursuant to the Board’s authorizations.

15



Note 16: Guarantor and Non-Guarantor Financial Information
Our Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by J.M. Smucker LLC and The Folgers Coffee Company (the “subsidiary guarantors”), which are 100 percent wholly-owned subsidiaries of the Company. A subsidiary guarantor will be released from its obligations under the indentures governing the notes (a) with respect to each series of notes, if we exercise our legal or covenant defeasance option with respect to such series of notes or if our obligations under an indenture are discharged in accordance with the terms of such indenture in respect of such series of notes; (b) with respect to all series of notes issued in March 2015, upon the issuance, sale, exchange, transfer, or other disposition (including through merger, consolidation, amalgamation, or otherwise) of the capital stock of the applicable subsidiary guarantor (including any issuance, sale, exchange, transfer, or other disposition following which the applicable subsidiary guarantor is no longer a subsidiary) if such issuance, sale, exchange, transfer, or other disposition is made in a manner not in violation of the indenture in respect of such series of notes; or (c) with respect to all series of notes, upon the substantially simultaneous release or discharge of the guarantee by such subsidiary guarantor of all of our primary senior indebtedness other than through discharges as a result of payment by such guarantor on such guarantees.
Condensed consolidating financial statements for the Company, the subsidiary guarantors, and the other subsidiaries of the Company that are not guaranteeing the indebtedness under the Senior Notes (the “non-guarantor subsidiaries”) are provided below. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with our 100 percent wholly-owned subsidiary guarantors and non-guarantor subsidiaries. We have accounted for investments in subsidiaries using the equity method.
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME                                                         
Three Months Ended July 31, 2016
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
976.0

 
$
310.6

 
$
2,599.9

 
$
(2,070.7
)
 
$
1,815.8

Cost of products sold
806.6

 
279.9

 
2,062.1

 
(2,055.5
)
 
1,093.1

Gross Profit
169.4

 
30.7

 
537.8

 
(15.2
)
 
722.7

Selling, distribution, and administrative expenses and
   other special project costs
84.9

 
10.1

 
283.2

 

 
378.2

Amortization
2.5

 

 
49.2

 

 
51.7

Other operating expense (income) – net
0.2

 

 
(1.2
)
 

 
(1.0
)
Operating Income
81.8

 
20.6

 
206.6

 
(15.2
)
 
293.8

Interest (expense) income – net
(41.7
)
 
0.3

 
(0.1
)
 

 
(41.5
)
Other income (expense) – net
2.1

 
0.1

 
(1.1
)
 

 
1.1

Equity in net earnings of subsidiaries
134.5

 
34.9

 
20.7

 
(190.1
)
 

Income Before Income Taxes
176.7

 
55.9

 
226.1

 
(205.3
)
 
253.4

Income taxes
6.7

 
0.1

 
76.6

 

 
83.4

Net Income
$
170.0

 
$
55.8

 
$
149.5

 
$
(205.3
)
 
$
170.0

Other comprehensive income (loss), net of tax
2.5

 
0.3

 
(13.5
)
 
13.2

 
2.5

Comprehensive Income
$
172.5

 
$
56.1

 
$
136.0

 
$
(192.1
)
 
$
172.5



16



CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME                                                         
Three Months Ended July 31, 2015
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
760.8

 
$
298.2

 
$
2,234.0

 
$
(1,341.0
)
 
$
1,952.0

Cost of products sold
609.9

 
272.2

 
1,681.8

 
(1,340.6
)
 
1,223.3

Gross Profit
150.9

 
26.0

 
552.2

 
(0.4
)
 
728.7

Selling, distribution, and administrative expenses and
   other special project costs
62.2

 
10.6

 
337.7

 

 
410.5

Amortization
1.1

 

 
51.9

 

 
53.0

Other operating (income) expense – net
(0.1
)
 
0.4

 
(2.2
)
 

 
(1.9
)
Operating Income
87.7

 
15.0

 
164.8

 
(0.4
)
 
267.1

Interest (expense) income – net
(44.6
)
 
0.3

 
(0.1
)
 

 
(44.4
)
Other income (expense) – net
2.9

 

 
(2.8
)
 

 
0.1

Equity in net earnings of subsidiaries
106.4

 
33.2

 
15.0

 
(154.6
)
 

Income Before Income Taxes
152.4

 
48.5

 
176.9

 
(155.0
)
 
222.8

Income taxes
16.0

 
0.1

 
70.3

 

 
86.4

Net Income
$
136.4

 
$
48.4

 
$
106.6

 
$
(155.0
)
 
$
136.4

Other comprehensive (loss) income, net of tax
(21.1
)
 
0.3

 
(22.3
)
 
22.0

 
(21.1
)
Comprehensive Income
$
115.3

 
$
48.7

 
$
84.3

 
$
(133.0
)
 
$
115.3


CONDENSED CONSOLIDATING BALANCE SHEETS
July 31, 2016
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
5.4

 
$

 
$
104.2

 
$

 
$
109.6

Inventories

 
153.8

 
876.0

 
(15.2
)
 
1,014.6

Other current assets
560.1

 
5.7

 
65.2

 
(14.5
)
 
616.5

Total Current Assets
565.5

 
159.5

 
1,045.4

 
(29.7
)
 
1,740.7

Property, Plant, and Equipment – Net
290.8

 
578.4

 
729.3

 

 
1,598.5

Investments in Subsidiaries
15,229.4

 
4,352.9

 
352.5

 
(19,934.8
)
 

Intercompany Receivable

 
436.1

 
1,584.9

 
(2,021.0
)
 

Other Noncurrent Assets
 
 
 
 
 
 
 
 
 
Goodwill
1,494.8

 

 
4,589.8

 

 
6,084.6

Other intangible assets – net
425.7

 

 
6,014.8

 

 
6,440.5

Other noncurrent assets
56.7

 
9.3

 
131.5

 

 
197.5

Total Other Noncurrent Assets
1,977.2

 
9.3

 
10,736.1

 

 
12,722.6

Total Assets
$
18,062.9

 
$
5,536.2

 
$
14,448.2

 
$
(21,985.5
)
 
$
16,061.8

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
$
775.6

 
$
90.0

 
$
437.3

 
$
(14.5
)
 
$
1,288.4

Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
5,045.7

 

 

 

 
5,045.7

Deferred income taxes
69.9

 

 
2,175.2

 

 
2,245.1

Intercompany payable
4,736.5

 

 

 
(4,736.5
)
 

Other noncurrent liabilities
339.3

 
17.8

 
29.6

 

 
386.7

Total Noncurrent Liabilities
10,191.4

 
17.8

 
2,204.8

 
(4,736.5
)
 
7,677.5

Total Liabilities
10,967.0

 
107.8

 
2,642.1

 
(4,751.0
)
 
8,965.9

Total Shareholders’ Equity
7,095.9

 
5,428.4

 
11,806.1

 
(17,234.5
)
 
7,095.9

Total Liabilities and Shareholders’ Equity
$
18,062.9

 
$
5,536.2

 
$
14,448.2

 
$
(21,985.5
)
 
$
16,061.8


17



CONDENSED CONSOLIDATING BALANCE SHEETS
April 30, 2016
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7.0

 
$

 
$
102.8

 
$

 
$
109.8

Inventories

 
143.2

 
752.0

 
4.2

 
899.4

Other current assets
497.3

 
5.9

 
71.9

 
(10.9
)
 
564.2

Total Current Assets
504.3

 
149.1

 
926.7

 
(6.7
)
 
1,573.4

Property, Plant, and Equipment – Net
296.3

 
587.0

 
744.4

 

 
1,627.7

Investments in Subsidiaries
15,092.2

 
4,317.9

 
331.6

 
(19,741.7
)
 

Intercompany Receivable

 
404.7

 
1,543.9

 
(1,948.6
)
 

Other Noncurrent Assets
 
 
 
 
 
 
 
 
 
Goodwill
1,494.8

 

 
4,596.3

 

 
6,091.1

Other intangible assets – net
428.3

 

 
6,066.1

 

 
6,494.4

Other noncurrent assets
57.4

 
10.4

 
129.7

 

 
197.5

Total Other Noncurrent Assets
1,980.5

 
10.4

 
10,792.1

 

 
12,783.0

Total Assets
$
17,873.3

 
$
5,469.1

 
$
14,338.7

 
$
(21,697.0
)
 
$
15,984.1

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
$
723.3

 
$
78.9

 
$
421.6

 
$
(10.8
)
 
$
1,213.0

Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
5,146.0

 

 

 

 
5,146.0

Deferred income taxes
60.7

 

 
2,169.6

 

 
2,230.3

Intercompany payable
4,644.7

 

 

 
(4,644.7
)
 

Other noncurrent liabilities
290.1

 
17.9

 
78.3

 

 
386.3

Total Noncurrent Liabilities
10,141.5

 
17.9

 
2,247.9

 
(4,644.7
)
 
7,762.6

Total Liabilities
10,864.8

 
96.8

 
2,669.5

 
(4,655.5
)
 
8,975.6

Total Shareholders’ Equity
7,008.5

 
5,372.3

 
11,669.2

 
(17,041.5
)
 
7,008.5

Total Liabilities and Shareholders’ Equity
$
17,873.3

 
$
5,469.1

 
$
14,338.7

 
$
(21,697.0
)
 
$
15,984.1


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended July 31, 2016
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Cash Provided by Operating Activities
$
87.0

 
$
46.3

 
$
105.6

 
$

 
$
238.9

Investing Activities
 
 
 
 
 
 
 
 
 
Additions to property, plant, and equipment
(7.0
)
 
(12.7
)
 
(30.5
)
 

 
(50.2
)
(Disbursements of) repayments from intercompany loans

 
(31.5
)
 
(60.2
)
 
91.7

 

Other – net
(0.1
)
 
(2.1
)
 
(10.1
)
 

 
(12.3
)
Net Cash (Used for) Provided by Investing Activities
(7.1
)
 
(46.3
)
 
(100.8
)
 
91.7

 
(62.5
)
Financing Activities
 
 
 
 
 
 
 
 
 
Short-term borrowings – net
22.0

 

 

 

 
22.0

Repayments of long-term debt
(100.0
)
 

 

 

 
(100.0
)
Quarterly dividends paid
(77.8
)
 

 

 

 
(77.8
)
Purchase of treasury shares
(18.1
)
 

 

 

 
(18.1
)
Intercompany payable
91.7

 

 

 
(91.7
)
 

Other – net
0.7

 

 

 

 
0.7

Net Cash Used for Financing Activities
(81.5
)
 

 

 
(91.7
)
 
(173.2
)
Effect of exchange rate changes on cash

 

 
(3.4
)
 

 
(3.4
)
Net (decrease) increase in cash and cash equivalents
(1.6
)
 

 
1.4

 

 
(0.2
)
Cash and cash equivalents at beginning of period
7.0

 

 
102.8

 

 
109.8

Cash and Cash Equivalents at End of Period
$
5.4

 
$

 
$
104.2

 
$

 
$
109.6



18



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended July 31, 2015
 
The J.M. Smucker
Company (Parent)
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net Cash Provided by Operating Activities
$
151.7

 
$
27.6

 
$
127.7

 
$

 
$
307.0

Investing Activities
 
 
 
 
 
 
 
 
 
Business acquired, net of cash acquired

 

 
7.9

 

 
7.9

Additions to property, plant, and equipment
(14.8
)
 
(13.8
)
 
(24.4
)
 

 
(53.0
)
(Disbursements of) repayments from intercompany loans

 
(8.6
)
 
(114.2
)
 
122.8

 

Other – net

 
(5.2
)
 
12.2

 

 
7.0

Net Cash (Used for) Provided by Investing Activities
(14.8
)
 
(27.6
)
 
(118.5
)
 
122.8

 
(38.1
)
Financing Activities
 
 
 
 
 
 
 
 
 
Short-term borrowings – net
76.0

 

 
0.6

 

 
76.6

Repayments of long-term debt
(250.0
)
 

 

 

 
(250.0
)
Quarterly dividends paid
(76.4
)
 

 

 

 
(76.4
)
Purchase of treasury shares
(6.9
)
 

 

 

 
(6.9
)
Intercompany payable
122.8

 

 

 
(122.8
)
 

Other – net
0.5

 

 

 

 
0.5

Net Cash (Used for) Provided by Financing Activities
(134.0
)
 

 
0.6

 
(122.8
)
 
(256.2
)
Effect of exchange rate changes on cash

 

 
(4.7
)
 

 
(4.7
)
Net increase in cash and cash equivalents
2.9

 

 
5.1

 

 
8.0

Cash and cash equivalents at beginning of period
7.1

 

 
118.5

 

 
125.6

Cash and Cash Equivalents at End of Period
$
10.0

 
$

 
$
123.6

 
$

 
$
133.6


19



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Dollars in millions, unless otherwise noted, except per share data
This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three-month periods ended July 31, 2016 and 2015. All comparisons presented are to the corresponding period of the prior year, unless otherwise noted.
We are the owner of all trademarks, except for the following, which are used under license: Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC; Carnation® is a trademark of Société des Produits Nestlé S.A.; Dunkin’ Donuts is a registered trademark of DD IP Holder, LLC; Sweet’N Low®, NatraTaste®, Sugar In The Raw®, and the other “In The Raw” trademarks are registered trademarks of Cumberland Packing Corp. and its affiliates; and Douwe Egberts® and Pickwick® are registered trademarks of Jacobs Douwe Egberts.
Dunkin’ Donuts brand is licensed to us for packaged coffee products, including K-Cup® pods, sold in retail channels such as grocery stores, mass merchandisers, club stores, and drug stores. Information in this document does not pertain to Dunkin’ Donuts coffee or other products for sale in Dunkin’ Donuts restaurants. K-Cup® is a trademark of Keurig Green Mountain, Inc., used with permission.

Results of Operations
 
Three Months Ended July 31,
 
2016
 
2015
 
% Increase (Decrease)
Net sales
$
1,815.8

 
$
1,952.0

 
(7
)%
Gross profit
$
722.7

 
$
728.7

 
(1
)%
% of net sales
39.8
%
 
37.3
%
 


Operating income
$
293.8

 
$
267.1

 
10
 %
% of net sales