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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1998 Commission file number 1-800
WM. WRIGLEY JR. COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-1988190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 North Michigan Avenue
Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 312-644-2121
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 x .
No .
92,858,447 shares of Common Stock and 23,355,932 shares of Class B
Common Stock were outstanding as of July 15, 1998.
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FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1
WM. WRIGLEY JR. COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (CONDENSED)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 541,162 521,272 1,010,481 968,879
Investment and other income 4,567 4,001 8,471 7,557
Total revenues 545,729 525,273 1,018,952 976,436
Costs and expenses:
Cost of sales 226,854 225,348 427,247 421,414
Costs (gain) related to
factory closure 0 1,760 (10,404) 3,014
Selling, distribution, and
general administrative 193,543 184,824 363,542 343,992
Interest 179 317 364 636
Total costs and expenses 420,576 412,249 780,749 769,056
Earnings before income taxes 125,153 113,024 238,203 207,380
Income taxes 40,611 36,377 77,555 67,884
Net earnings $ 84,542 76,647 160,648 139,496
Net earnings per average share of
common stock (basic
and diluted) $ .73 .66 1.39 1.20
Dividends declared per share of
common stock $ .20 .19 .40 .38
Average number of shares
outstanding for the period $ 115,908 115,961 115,920 115,959
</TABLE>
All amounts in thousands except for per share values.
Notes to financial statements shown on page 5 are an integral part
of these statements.
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<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1 (Cont'd)
WM. WRIGLEY JR. COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONDENSED)
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $160,648 139,496
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 26,453 23,531
(Gain) loss on sales of property, plant,
and equipment 185 (254)
(Gain) related to factory closure (10,404) 0
(Increase) in:
Accounts receivable (47,473) (44,957)
Inventories (5,682) (12,270)
Other current assets (6,745) (17,879)
Other assets and deferred charges (12,171) (25,711)
Increase in:
Accounts payable 6,304 23,660
Accrued expenses 23,674 26,689
Income and other taxes payable 3,681 6,474
Deferred taxes 4,428 712
Other noncurrent liabilities 6,868 11,341
Net cash provided by operating activities 149,766 130,832
INVESTING ACTIVITIES
Additions to property, plant, and equipment (60,946) (41,004)
Proceeds from property retirements 8,058 2,661
Purchases of short-term investments (70,374) (80,643)
Maturities of short-term investments 63,611 88,471
Net cash used in investing activities (59,651) (30,515)
FINANCING ACTIVITIES
Dividends paid (45,215) (41,745)
Common stock purchased (7,359) (3,392)
Net cash used in financing activities (52,574) (45,137)
Effect of exchange rate changes on cash and
cash equivalents (1,776) (4,942)
Net increase in cash and cash equivalents 35,765 50,238
Cash and cash equivalents at beginning of period 206,627 181,233
Cash and cash equivalents at end of period $242,392 231,471
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 70,360 63,240
Interest paid $ 752 1,096
Interest and dividends received $ 8,496 7,209
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All amounts in thousands.
Notes to financial statements shown on page 5 are an integral part
of these statements.
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<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1 (Cont'd)
WM. WRIGLEY JR. COMPANY
CONSOLIDATED BALANCE SHEET (CONDENSED)
June 30, December 31,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 242,392 206,627
Short-term investments, at amortized cost 127,443 120,728
Accounts receivable
(less allowance for doubtful accounts;
6/30/98- $7,607; 12/31/97-$7,524) 222,724 175,967
Inventories -
Finished goods 59,250 63,912
Raw materials and supplies 192,518 183,480
251,768 247,392
Other current assets 37,044 30,538
Deferred income taxes - current 12,903 16,421
Total current assets 894,274 797,673
Marketable equity securities at fair value 28,062 26,375
Deferred charges and other assets 74,053 59,566
Deferred income taxes - noncurrent 28,887 29,038
Property, plant and equipment, at cost 896,905 870,872
Less accumulated depreciation 440,537 440,398
Net property, plant, and equipment 456,368 430,474
Total assets $1,481,644 1,343,126
Current liabilities:
Accounts payable $ 76,911 71,001
Accrued expenses 93,901 78,378
Dividends payable 23,182 22,034
Income and other taxes payable 57,083 53,460
Deferred income taxes - current 582 943
Total current liabilities 251,659 225,816
Deferred income taxes - noncurrent 32,563 30,874
Other noncurrent liabilities 107,720 101,057
Stockholders' equity:
Preferred stock - no par value
Authorized - 20,000 shares
Issued - None
Common stock - no par value
Authorized - 400,000 shares
Issued - 92,838 shares at 6/30/98;
92,545 shares at 12/31/97 12,378 12,339
Class B common stock - convertible
Authorized - 80,000 shares
Issued and outstanding -
23,383 shares at 6/30/98;
23,676 shares at 12/31/97 3,118 3,157
Additional paid-in capital 272 226
Retained earnings 1,146,424 1,032,139
Foreign currency translation adjustment (71,283) (65,034)
Unrealized holding gains on marketable
equity securities 17,011 15,915
Common stock in treasury, at cost - (6/30/98-
313 shares; 12/31/97-252 shares) (18,218) (13,363)
Total stockholders' equity 1,089,702 985,379
Total liabilities & stockholders' equity $ 1,481,644 1,343,126
</TABLE>
All amounts in thousands.
Notes to financial statements shown on page 5 are an integral part
of these statements.
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FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1 (Cont'd)
WM. WRIGLEY JR. COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
1. The Consolidated Statement of Earnings (Condensed) for the
three month and the six month periods ended June 30, 1998 and
1997, respectively, the Consolidated Statement of Cash Flows
(Condensed) for the six month periods ended June 30, 1998 and
1997, and the Consolidated Balance Sheet(Condensed) at June
30, 1998, are unaudited. In the Company's opinion, the
accompanying financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary
to present fairly the results for the periods, and have been
prepared on a basis consistent with the 1997 audited
consolidated financial statements. These condensed
financial statements should be read in conjunction with the
1997 consolidated financial statements and related notes which
are an integral part thereof. Certain amounts recorded in
1997 have been reclassified to conform to the 1998
presentation.
2. Conformity with generally accepted accounting principles
requires management to make estimates and assumptions when
preparing financial statements that affect assets,
liabilities, revenues and expenses. Actual results may vary
from those estimates.
3. On January 22, 1998, the Company sold its real estate holding
in
Santa Cruz, California. For the first six months of 1998, the
Company recorded a pretax gain of approximately $10,404,000
and net
earnings of approximately $6,763,000 or $.06 per share related
to the sale of the property.
4. An analysis of the cumulative foreign currency translation
adjustment follows (in thousands of dollars).
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Decrease to
Stockholders' Equity
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Second Quarter 1998 1997
Balance at April 1 $ 66,517 32,623
Translation adjustment for
the second quarter 4,766 11,415
Balance at June 30 $ 71,283 44,038
Six Months 1998 1997
Balance at January 1 $ 65,034 14,716
Translation adjustment for
the first six months 6,249 29,322
Balance at June 30 $ 71,283 44,038
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5. An analysis of comprehensive income is provided below (in
thousands of dollars).
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Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
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Net earnings $ 84,542 76,647 160,648 139,496
Other comprehensive income,
before tax
Foreign currency
translation adjustments (4,766) (11,415) (6,249) (29,322)
Unrealized holding gains
on securities (3,414) 1,918 1,686 1,649
Other comprehensive income,
before tax (8,180) (9,497) (4,563) (27,673)
Income tax expense related to
items of other comprehensive
income 1,195 (671) (590) (577)
Other comprehensive income,
net of tax (6,985) (10,168) (5,153) (28,250)
Total comprehensive income $ 77,557 66,479 155,495 111,246
</TABLE>
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FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Sales
Net sales for the second quarter of 1998 increased by $19.9 million
or 4% compared with the same period last year. Higher shipments
increased net sales by 5% while selected selling price increases
and favorable mix increased sales by 3%. Translation of sales from
foreign currencies to U.S. dollars reduced reported net sales by
approximately 4%.
Net sales for the first six months of 1998 increased by $41.6
million or 4% compared with the same period last year. Higher
shipments increased net sales by 6% while selected selling price
increases and favorable mix increased sales by 3%. Translation of
sales from foreign currencies to U.S. dollars reduced reported net
sales by approximately 5%.
Costs of Sales and Gross Profit
Cost of sales for the second quarter of 1998 increased by $1.5
million or 1% compared with the same period last year. Excluding
the effect of foreign currency translation, cost of sales in the
second quarter of 1998 increased by about 5% from the same period
in 1997, mainly due to increased international volume. Excluding
the impact of the closure of the Santa Cruz factory, consolidated
gross profit in the second quarter of 1998 was $314.3 million, an
increase of $18.4 million or 6% from the second quarter of 1997.
The consolidated gross profit margin on net sales was 58.1% for
1998's second quarter, up from 56.8% in the second quarter of 1997.
The improvement in gross profit percentage reflects selected
selling price increases and favorable mix primarily in the
international markets and lower production costs in the U.S.
market.
Cost of sales for the first six months of 1998 increased by $5.8
million or 1% compared with the same period last year. Excluding
the effect of foreign currency translation, cost of sales in the
first six months of 1998 increased by about 6% from the same period
in 1997, mainly due to increased international volume. Excluding
the impacts of the closure and subsequent sale of the Santa Cruz
factory, consolidated gross profit in the first six months of 1998
was $583.2 million, an increase of $35.8 million or nearly 7% from
the first six months of 1997. The consolidated gross profit margin
on net sales was 57.7% for 1998's first six months up from 56.5% in
the first six months of 1997. The improvement in gross profit
percent reflects favorable mix and selected selling price increases
primarily in the international markets and lower production costs
and favorable mix in the U.S. market.
Selling, Distribution, and General Administrative Expenses
Consolidated selling, distribution, and general administrative
expenses for the second quarter increased by $8.7 million or 5%
compared to the same period last year. Excluding the effects of
foreign currency translation, the increase was about 9% in the
second quarter of 1998, primarily due to higher international
selling and marketing expenditures.
Consolidated selling, distribution, and general administrative
expenses for the first six months increased by $19.6 million or 6%
compared to the same period last year. Excluding the effects of
foreign currency translation, the increase was about 11% in the
first six months of 1998, primarily due to higher international
selling and marketing expenditures.
Income Taxes
Income taxes in the second quarter increased $4.2 million or 12%
from 1997's second quarter. Income taxes in the first six months
increased $9.7 million or 14% from 1997's first six months. The
effective tax rates for the second quarter and first six months of
1998 and 1997 are shown below.
1998 1997
Second quarter 32.4% 32.2%
First six months 32.6% 32.7%
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Cont'd)
Net Earnings
Consolidated net earnings for the second quarter of 1998 totaled
$84.5 million or $.73 per share, an increase of 11% on an earnings
per share basis compared to last year's earnings of $76.6 million
or $.66 per share. Excluding Santa Cruz, consolidated net earnings
for the second quarter of 1998 totaled $84.5 million or $.73 per
share, an increase of 9% on an earnings per share basis compared to
last year's earnings of $77.8 million or $.67 per share.
Consolidated net earnings for the first six months of 1998 totaled
$160.6 million or or $1.39 per share, an increase of 16% on an
earnings per share basis compared to last year's earnings of $139.5
million or $1.20 per share. Excluding Santa Cruz, consolidated net
earnings for the first six months of 1998 totaled $153.9 million or
$1.33 per share, an increase of 9% on an earnings per share basis
compared to last year's earnings of $141.6 million or $1.22 per
share.
LIQUIDITY AND CAPITAL RESOURCES
Current Ratio
The Company has a current ratio (current assets divided by current
liabilities) in excess of 3 to 1 at June 30, 1998 and December 31,
1997.
Additions to Property, Plant, and Equipment
Capital expenditures for 1998 are expected to be above 1997
expenditures of $127 million and are expected to be funded from the
Company's cash flow from operations and internal sources.
OTHER MATTERS
Year 2000
The Company recognizes the potential business impacts related to
the Year 2000 technology issue. The issue is one where computer
systems may recognize the designation "00" as 1900 when it means
2000, resulting in processing failures or errors. The Company
began to address this issue in 1995, and is currently implementing
appropriate measures to ensure its business operations are not
impeded by the millennium change. The Company continues to review
Year 2000 issues with its suppliers, customers, and other business
partners and has made and will continue to make investments in its
computer systems, manufacturing equipment, facilities, and business
processes to ensure they are year 2000 ready. The Company expects
to incur approximately $10,000,000 in 1998 in its Year 2000
readiness efforts. Costs incurred after 1998 are not expected to
be significant.
Market Risk
Inherent in the Company's operations are certain risks related to
foreign currency, interest rates, and the equity markets. The
Company identifies these risks and mitigates their financial impact
through its corporate policies and hedging activities. Movements
in market values of financial instruments used to mitigate
identified risks are not expected to have a material impact on
future earnings, cash flows, or reported fair values.
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FORM 10-Q
PART II - OTHER INFORMATION
Item 5. Other Information
1. Stockholder Proposals for 1999 Annual Meeting. If any
stockholder intends to present a proposal to be considered for
action at the 1999 Annual Meeting of Stockholders and for
inclusion in the Company's proxy statement and form of
proxy for that meeting, the proposal must be in proper form
and received in writing by the Secretary of the Company on or
before October 6, 1998.
If any stockholder intends to submit a proposal to a vote of
stockholders at the 1999 Annual Meeting of Stockholders, but
not for inclusion in the Company's proxy statement and form of
proxy, unless the proposal is submitted in writing in proper
form to the Secretary of the Company on or before December 18,
1998, at the Annual Meeting management proxies can use their
discretionary authority to vote on such proposal at that
Annual Meeting.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits reference is made to the Exhibit Index on page 10.
(b) The Company has not filed a Form 8-K for the three month
period ended June 30, 1998.
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FORM 10-Q
SIGNATURES
Pursuant to the requirements 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.
WM. WRIGLEY JR. COMPANY
(Registrant)
By /s/DUSHAN PETROVICH
Dushan Petrovich
Vice President - Controller
Authorized Signatory and Chief
Accounting Officer
Date August 13, 1998
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WM. WRIGLEY JR. COMPANY
AND WHOLLY OWNED ASSOCIATED COMPANIES
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
3(i). Articles of Incorporation of the Registrant. The
Registrant's Restated Articles of Incorporation
are incorporated by reference to Exhibit 3(a) of
the Company's Annual Report on Form 10-K filed
for the fiscal year ended December 31, 1992.
3(ii). By-laws of the Registrant. The Registrant's By-laws
are incorporated by reference to Exhibit 3(a) of the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1992.
4. Instruments defining the rights of security holders.
The Registrant's Articles of Incorporation contains all
definitions of the rights of the Registrant's Common
and Class B Common stock, representing all of the
Registrant's outstanding securities, and is
incorporated by reference to Exhibit 3(a) of the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10. Material Contracts
10(a). Non-Employee Directors' Death Benefit Plan.
Non-Employee Directors' Death Benefit Plan is
incorporated by reference from Exhibit 10(a) of
the Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1994.
10(b). Senior Executive Insurance Plan. Senior Executive
Insurance Plan is incorporated by reference from
Exhibit 10(b) of the Company's Annual Report on Form
10-K filed for the fiscal year ended December 31, 1995.
10(c). Supplemental Retirement Plan. Supplemental Retirement
Plan is incorporated by reference from Exhibit 10(c) of
the Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1994.
10(d). Deferred Compensation Plan for Non-Employee Directors.
Deferred Compensation Plan for Non-Employee Directors
is incorporated by reference from Exhibit 10(d) of the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1995.
10(e). Stock Deferral Plan for Non-Employee Directors. The
Stock Deferral Plan for Non Employee Directors is
incorporated by reference from Exhibit 10(e) of the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1995.
10(g). Wm. Wrigley Jr. Company 1997 Management Incentive Plan
is incorporated by reference from Exhibit 10(g) of the
Company's Quarterly report on Form 10-Q for the quarter
ended September 30, 1997.
27. Financial Data Schedules.
99. Forward-Looking Statements. Forward-Looking Statements
are incorporated by reference from Exhibit 99 of the
Company's Annual Report on Form 10-K filed for the
fiscal year ended December 31, 1997.
- --------------------
Copies of Exhibits are not attached hereto, but the Registrant
will furnish them upon request and upon payment to the Registrant
of a fee in the amount of $20.00 representing reproduction and
handling costs.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 242,392
<SECURITIES> 155,505
<RECEIVABLES> 230,331
<ALLOWANCES> 7,607
<INVENTORY> 251,768
<CURRENT-ASSETS> 894,274
<PP&E> 896,905
<DEPRECIATION> 440,537
<TOTAL-ASSETS> 1,481,644
<CURRENT-LIABILITIES> 251,659
<BONDS> 0
0
0
<COMMON> 15,496
<OTHER-SE> 1,074,206
<TOTAL-LIABILITY-AND-EQUITY> 1,481,644
<SALES> 1,010,481
<TOTAL-REVENUES> 1,018,952
<CGS> 416,843
<TOTAL-COSTS> 780,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> 238,203
<INCOME-TAX> 77,555
<INCOME-CONTINUING> 160,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,648
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
