<PAGE>
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 September 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 September 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 .
92,932,204 shares of Common Stock and 23,282,175 shares of
Class B Common Stock were outstanding as of October 15, 1998.
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<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1
WM. WRIGLEY JR. COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (CONDENSED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 493,955 481,938 1,504,436 1,450,817
Investment and other income 4,920 4,442 13,391 11,999
Total revenues 498,875 486,380 1,517,827 1,462,816
Costs and expenses:
Cost of sales 207,140 208,931 634,387 630,345
Costs (gain) related to
factory closure 0 92 (10,404) 3,106
Selling, distribution, and
general administrative 182,887 174,212 546,429 518,204
Interest 165 183 529 819
Total costs and expenses 390,192 383,418 1,170,941 1,152,474
Earnings before income taxes 108,683 102,962 346,886 310,342
Income taxes 35,588 33,436 113,143 101,320
Net earnings $ 73,095 69,526 233,743 209,022
Net earnings per average share of
common stock (basic
and diluted) $ .63 .60 2.02 1.80
Dividends declared per share of
common stock $ .20 .19 .60 .57
Average number of shares
outstanding for the period 115,907 115,968 115,916 115,962
</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)
Nine Months Ended
September 30,
1998 1997
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OPERATING ACTIVITIES
Net earnings $233,743 209,022
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 40,469 36,421
(Gain) loss on sales of property, plant,
and equipment (40) (897)
(Gain) related to factory closure (10,404) 0
(Increase) decrease in:
Accounts receivable (49,295) (57,749)
Inventories (16,709) (31,917)
Other current assets (6,492) (14,238)
Other assets and deferred charges (11,086) 12,864
Increase in:
Accounts payable 24,250 26,958
Accrued expenses 22,022 30,608
Income and other taxes payable 13,593 13,303
Deferred taxes 8,396 245
Other noncurrent liabilities 459 17,590
Net cash provided by operating activities 248,906 242,210
INVESTING ACTIVITIES
Additions to property, plant, and equipment (90,907) (86,579)
Proceeds from property retirements 8,795 4,519
Purchases of short-term investments (96,766) (117,757)
Maturities of short-term investments 80,307 116,636
Net cash used in investing activities (98,571) (83,181)
FINANCING ACTIVITIES
Dividends paid (68,398) (63,778)
Common stock purchased (7,441) (3,504)
Net cash used in financing activities (75,839) (67,282)
Effect of exchange rate changes on cash and
cash equivalents (17,528) (9,688)
Net increase in cash and cash equivalents 56,968 82,059
Cash and cash equivalents at beginning of period 206,627 181,233
Cash and cash equivalents at end of period $263,595 263,292
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 92,988 88,996
Interest paid $ 997 1,273
Interest and dividends received $ 13,518 11,322
</TABLE>
All amounts in thousands.
Notes to financial statements shown on page 5 are an integral
part of these statements.
<PAGE>
<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION - ITEM 1 (Cont'd)
WM. WRIGLEY JR. COMPANY
CONSOLIDATED BALANCE SHEET (CONDENSED)
September 30, December 31,
1998 1997
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Current assets:
Cash and cash equivalents $ 263,595 206,627
Short-term investments, at amortized cost 137,159 120,728
Accounts receivable
(less allowance for doubtful accounts;
9/30/98- $7,332; 12/31/97-$7,524) 229,734 175,967
Inventories -
Finished goods 62,484 63,912
Raw materials and supplies 204,096 183,480
266,580 247,392
Other current assets 37,663 30,538
Deferred income taxes - current 15,960 16,421
Total current assets 950,691 797,673
Marketable equity securities at fair value 31,191 26,375
Deferred charges and other assets 85,342 59,566
Deferred income taxes - noncurrent 25,026 29,038
Property, plant, and equipment, at cost 934,376 870,872
Less accumulated depreciation 456,578 440,398
Net property, plant, and equipment 477,798 430,474
Total assets $1,570,048 1,343,126
Current liabilities:
Accounts payable $ 97,471 71,001
Accrued expenses 94,301 78,378
Dividends payable 23,181 22,034
Income and other taxes payable 68,251 53,460
Deferred income taxes - current 1,032 943
Total current liabilities 284,236 225,816
Deferred income taxes - noncurrent 36,821 30,874
Other noncurrent liabilities 102,800 101,057
Stockholders' equity:
Preferred stock - no par value
Authorized - 20,000 shares
Issued - None
Common stock - no par value
Authorized - 400,000 shares
Issued - 92,929 shares at 9/30/98;
92,545 shares at 12/31/97 12,390 12,339
Class B common stock - convertible
Authorized - 80,000 shares
Issued and outstanding -
23,292 shares at 9/30/98;
23,676 shares at 12/31/97 3,106 3,157
Additional paid-in capital 272 226
Retained earnings 1,196,337 1,032,139
Foreign currency translation adjustment (78,311) (65,034)
Unrealized holding gains on marketable
equity securities 19,045 15,915
Common stock in treasury, at cost - (9/30/98-
314 shares; 12/31/97-252 shares) (6,648) (13,363)
Total stockholders' equity 1,146,191 985,379
Total liabilities & stockholders' equity $ 1,570,048 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 nine month periods ended September 30,
1998 and 1997, respectively, the Consolidated Statement of
Cash Flows (Condensed) for the nine month periods ended
September 30, 1998 and 1997, and the Consolidated Balance
Sheet (Condensed) at September 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. In the first quarter
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).
<TABLE>
Decrease to
Stockholders' Equity
<S> <C> <C>
Third Quarter 1998 1997
Balance at June 30 $ 71,283 44,038
Translation adjustment for
the third quarter 7,028 12,136
Balance at September 30 $ 78,311 56,174
Nine Months 1998 1997
Balance at January 1 $ 65,034 14,716
Translation adjustment for
the first nine months 13,277 41,458
Balance at September 30 $ 78,311 56,174
</TABLE>
5. An analysis of comprehensive income is provided below (in
thousands of dollars).
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
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Net earnings $ 73,095 69,526 233,743 209,022
Other comprehensive income,
before tax:
Foreign currency
translation adjustments (7,028) (12,136) (13,277) (41,458)
Unrealized holding gains
on securities 3,129 2,102 4,815 3,751
Other comprehensive income,
before tax (3,899) (10,034) (8,462) (37,707)
Income tax expense related to
items of other comprehensive
income (1,095) (736) (1,685) (1,313)
Other comprehensive income,
net of tax (4,994) (10,770) (10,147) (39,020)
Total comprehensive income $ 68,101 58,756 223,596 170,002
</TABLE>
<PAGE>
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 third quarter of 1998 increased by $12.0
million or 2% compared with the same period last year. Higher
shipments increased net sales by 1% while selected selling
price increases and favorable mix increased sales by 2%.
Translation of sales from foreign currencies to U.S. dollars
reduced reported net sales by approximately 1%.
Net sales for the first nine months of 1998 increased by $53.6
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%.
Costs of Sales and Gross Profit
Cost of sales for the third quarter of 1998 decreased by $1.8
million or 1% compared with the same period last year.
Excluding the effect of foreign currency translation, cost of
sales in the third quarter of 1998 increased by about 1% 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 third quarter of 1998
was $286.8 million, an increase of $13.8 million or 5% from the
third quarter of 1997. The consolidated gross profit margin on
net sales was 58.1% for 1998's third quarter, up from 56.6% in
the third quarter of 1997. The improvement in gross profit
percentage reflects selected selling price increases and
favorable mix primarily in the international markets.
Cost of sales for the first nine months of 1998 increased by
$4.0 million or 1% compared with the same period last year.
Excluding the effect of foreign currency translation, cost of
sales in the first nine months of 1998 increased by about 5%
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 nine months of 1998 was $870.0 million, an
increase of $49.6 million or nearly 6% from the first nine
months of 1997. The consolidated gross profit margin on net
sales was 57.8% for 1998's first nine months up from 56.6% in
the first nine months of 1997. The improvement in gross profit
percent reflects favorable mix and selected selling price
increases primarily in the international markets and lower
product costs and favorable mix in the U.S. market.
Selling, Distribution, and General Administrative Expenses
Consolidated selling, distribution, and general administrative
expenses for the third 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 7% in
the third quarter of 1998, primarily due to higher
international selling and marketing expenditures.
Consolidated selling, distribution, and general administrative
expenses for the first nine months increased by $28.2 million
or 5% compared to the same period last year. Excluding the
effects of foreign currency translation, the increase was about
9% in the first nine months of 1998, primarily due to higher
international selling and marketing expenditures.
Income Taxes
Income taxes in the third quarter increased $2.2 million or 6%
from 1997's third quarter. Income taxes in the first nine
months increased $11.8 million or 12% from 1997's first nine
months. The effective tax rates for the third quarter and
first nine months of 1998 and 1997 are shown below.
1998 1997
Third quarter 32.7% 32.5%
First nine months 32.6% 32.6%
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Cont'd)
Net Earnings
Consolidated net earnings for the third quarter of 1998 totaled
$73.1 million or $.63 per share, an increase of 5% on an
earnings per share basis compared to last year's earnings of
$69.5 million or $.60 per share. Excluding Santa Cruz,
consolidated net earnings for the third quarter of 1998 totaled
$73.1 million or $.63 per share, an increase of 5% on an
earnings per share basis compared to last year's earnings of
$69.6 million or $.60 per share.
Consolidated net earnings for the first nine months of 1998
totaled $233.7 million or $2.02 per share, an increase of 12%
on an earnings per share basis compared to last year's earnings
of $209.0 million or $1.80 per share. Excluding Santa Cruz,
consolidated net earnings for the first nine months of 1998
totaled $227.0 million or $1.96 per share, an increase of 8% on
an earnings per share basis compared to last year's earnings of
$211.2 million or $1.82 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 September 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 believes it
has an effective program in place to resolve Year 2000 issues
in a timely manner.
The Company has completed the assessment of the majority of its
internal business critical systems and processes, and is now in
the process of remediation and testing of these business
critical systems. The Company will continue the assessment
process for the remaining systems and processes, both internal
and external. The Company continues to review Year 2000 issues
internally and externally 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 prepare for the Year 2000.
Most internal systems should be Year 2000 ready by March 31,
1999. Some low-risk equipment and minor issues will be dealt
with later in 1999. Implementing our plan, as it now stands,
will allow us to be fully ready by December 31, 1999. The
Company has certain pre-existing contingency arrangements and
has established processes for creating other business critical
contingency plans so that operations are not impeded by the
millennium change. Due to the difficulty in assessing if or
when third parties (those over whom the Company has little or
no control) will resolve their Year 2000 issues, the Company
will develop, as necessary, appropriate contingency plans for
them.
However, given the complexity of the Year 2000 issue, failure
by the Company or our external business partners to achieve
readiness could adversely affect the Company's operations. The
Company believes that its readiness program, including the
contingency plans, will minimize the effect of any temporary
disruptions in the Company's operations.
The Company expects to incur approximately $15,000,000,
including approximately $2,000,000 of capital spending, on all
of its Year 2000 efforts. The Company incurred approximately
$5,000,000 in 1997. It is expected that approximately
$10,000,000 will be incurred in 1998. Costs incurred after
1998 are not expected to be significant.
Statements contained in this disclosure may be considered to be
forward looking statements. A variety of factors could cause
actual results to differ materially from the anticipated
results or expectations expressed in these statements. The
important factors that could affect these outcomes are set for
in Exhibit 99 to this Quarterly Report on Form 10-Q.
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.
<PAGE>
FORM 10-Q
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
In accordance with the terms of Article Fourth of the Company's
Restated Certificate of Incorporation, the current term of the
Class B Common Stock will be automatically extended from April
1, 2001 until April 1, 2006, in light of the determination of
a special committee of all the Company's independent directors
not to adopt a resolution directing that the Class B Common
Stock be converted into Common Stock on April 1, 2001. Further
automatic extensions of five year terms, or conversion to
Common Stock, will be considered in the future as required by
the terms of said Article Fourth of the Company's Restated
Certificate of Incorporation.
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 September 30, 1998.
<PAGE>
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 November 12, 1998
<PAGE>
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 Exhibit 99 is attached as page 11.
- --------------------
For copies of Exhibits not attached hereto, 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.
<PAGE>
Exhibit 99
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects and operations, capital
expenditures, technological developments, new products,
research and development activities and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a
variety of important factors could cause the Company's actual
results and experience to differ materially from the
anticipated results or other expectations expressed in the
Company's forward-looking statements. The important factors
that may influence the operations, performance, development and
results of the Company's business include the following:
- - In those markets where the Company maintains market
leadership, it will most likely retain preferred retail
space allocation which enhance results.
- - Availability, pricing and sourcing of raw materials has
been relatively stable and a competitive advantage but the
inability to maintain this stability could modify results.
- - The Company has historically been successful marketing to
different segments of the population. Failure to
adequately anticipate and react to changing demographics
and product preferences could negatively affect results.
- - Both manufacturing and sales of a significant portion of
the Company's products are outside the United States and
could be disadvantaged by volatile foreign currencies and
markets.
- - The Company competes worldwide with other well established
manufacturers of chewing gum. The Company's results may
be adversely affected by a failure of new or existing
products to be favorably received, by ineffective
advertising, or by failure to sufficiently counter
aggressive competitive actions.
- - Underutilization of or inadequate manufacturing capacity
due to unanticipated movements in consumer demands could
materially affect manufacturing efficiencies and costs.
- - Discounting and other competitive actions may make it more
difficult for the Company to maintain its historically
strong operating margins.
- - Governmental regulations with respect to import duties,
tariffs and environmental controls, both in and outside
the U.S., could negatively impact the Company's costs and
ability to compete in domestic or foreign markets.
- - The Company has not had any material labor stoppages,
nevertheless, such disputes or strikes could unfavorably
affect shipments from suppliers or shipment of finished
product.
- - The failure of basic infrastructure (i.e., utilities)
could impede the ability of the Company's factories to
continue operating.
- - The failure of the Company's suppliers, customers or
business partners to be Year 2000 ready could interrupt
the Company's ability to continue to operate unimpeded
into the Year 2000 and beyond.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 263,595
<SECURITIES> 168,350
<RECEIVABLES> 237,066
<ALLOWANCES> 7,332
<INVENTORY> 266,580
<CURRENT-ASSETS> 950,691
<PP&E> 934,376
<DEPRECIATION> 456,578
<TOTAL-ASSETS> 1,570,048
<CURRENT-LIABILITIES> 284,236
<BONDS> 0
0
0
<COMMON> 15,496
<OTHER-SE> 1,130,695
<TOTAL-LIABILITY-AND-EQUITY> 1,570,048
<SALES> 1,504,436
<TOTAL-REVENUES> 1,517,827
<CGS> 623,983
<TOTAL-COSTS> 1,170,941
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 529
<INCOME-PRETAX> 346,886
<INCOME-TAX> 113,143
<INCOME-CONTINUING> 233,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,743
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
</TABLE>
