Wm.WRIGLEY Jr. Company Annual Report 1996
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Annual Report 1996 Wm.WRIGLEY Jr. Company TABLE OF CONTENTS 2 Wrigley at a Glance 4 President's Letter 6 Highlights 7 Consolidated Statement of Earnings 8 Consolidated Balance Sheet 10 Consolidated Statement of Cash Flows 11 Consolidated Statement of Stockholders' Equity 12 Accounting Policies and Notes to Consolidated Financial Statements 20 Report of Management 21 Report of Independent Auditors 22 Selected Financial Data 24 Quarterly Data 25 Management's Discussion and Analysis 28 Directors 30 Elected Officers 31 Corporate Facilities and Associated Companies 32 Stockholder Information WRIGLEYat a glance P R O D U C T S C O M PA N I E S PRODUCTION FA C I L I T I E S R E G I O N SS E RV E D M A J O RB R A N D S CHEWING GUM/ BUBBLE GUM W R I G L E Y UNITED STAT E S Chicago, Illinois North America Over 130 countries served Gainesville, Georgia Santa Cruz, California Latin America C A N A D A Don Mills, Ontario E N G L A N D Plymouth Europe F R A N C E Biesheim Middle East A U S T R I A Salzburg P O L A N D Poznan Africa K E N YA Nairobi RUSSIA St. Petersburg (1999) A U S T R A L I A Sydney Asia P H I L I P P I N E S Metro Manila Pacific TAI WA N Tapei C H I N A Guangzhou I N D I A Bangalore BUBBLE GUM/ C O N F E C T I O N S AMUROL CONFECTIONS UNITED STAT E S Yorkville, Illinois North America Over 50 countries served Latin America Europe Middle East Africa Asia Pacific GUM BASE L.A. DREYFUS UNITED STAT E S Edison, New Jersey All Wrigley production facilities (and some outside customers) F R A N C E Biesheim FL AV O R I N G N O RTHWESTERN FLAV O R S UNITED STAT E S West Chicago, Illinois All Wrigley production facilities (and some outside customers) Wm. Jr. Company OFFICE OF THE PRESIDENT WRIGLEY BUILDING • 410 N. MICHIGAN AVENUE • CHICAGO, ILLINOIS 60611 • TELEPHONE: 644-2121 To the Stockholders and Employees of the Wm. Wrigley Jr. Company Your Company continued to grow its global business in 1996. Competitive activity worldwide remained at a high level, particularly in many emerging markets. Traditional retail outlets, especially in the U.S., continued to consolidate, and a proliferation of new products competed for shelf space and consumer attention. Nevertheless, thanks to the hard work and determination of all Wrigley employees to strengthen our leadership position throughout the world, we achieved record sales for the twelfth consecutive year. Net earnings, although reduced by charges related to the closing of our Santa Cruz factory, also improved. The factory closing in Santa Cruz, which was announced last spring, is scheduled to be completed by the second quarter of this year. Those Wrigley employees who remain in Santa Cruz have worked diligently to maintain our high standards while winding down production. A number of Santa Cruz employees have also made the transition to our other U.S. factories where their associates have warmly welcomed them. By any measure, the process of closing a facility is diÇcult, but everyone involved is stepping up to meet the challenge. Their extra eÅort reÖects the quality of the people within the Company. Sales of all chewing gum in the U.S. declined somewhat in 1996 due to weakness in the sugarfree and bubble gum segments. Thanks to the continued strength of Winterfresh», which posted a signiÑcant increase over 1995, our total volume held up better than the overall chewing gum category and we gained market share. Winterfresh, although introduced just a little more than two years ago, now trails only Doublemint» as the most popular single-Öavored brand among U.S. consumers. Also, as a result of some selective pricing changes and continued cost control eÅorts, U.S. proÑtability improved over the prior year. To grow our U.S. volume, we have been focusing on increased distribution and merchandising through new and nontraditional channels. Our eÅorts are directed toward keeping our products visible and within easy reach of consumers, whose shopping habits continue to evolve. Combined with solid distribution and merchandising, eÅective advertising remains a cornerstone of our business, not only in the U.S. but around the world. To counter growing competitive spending in this important area, we continue to increase our marketing investment. Canada was our best performer in North America with solid volume growth in 1996. Our market share increased to its highest level in recent years due to our volume gains over 1995 while the total chewing gum category softened. The improvement was led by our sugarfree brands Ì Excel», which has been steadily winning over consumers since its 1991 introduction, and Extra», which recorded its largest volume increase since 1989. For the second straight year, our associates at Amurol Confections experienced a decline in volume. In the U.S., increased competition took its toll on the business, reducing sales and proÑtabil- ity. On the international side, Amurol's volume gains in Europe and the Asia/PaciÑc region were more than oÅset by declines in Latin America. Our Amurol associates are keeping a tight rein on costs and have developed new products to strengthen their position heading into 1997. In Europe, your Company achieved another year of solid growth in 1996, especially for our sugarfree brands. Substantial sugarfree volume gains across Eastern and Central Europe more than oÅset slight volume declines in Germany, France and Scandinavia. Our business in the U.K. rebounded strongly, with new advertising for Extra helping to boost sales. Volume gains in almost every country of Eastern and Central Europe in 1996 underscore the need for the steps we are taking to add manufacturing capacity in that region. Last January, production started at our new factory in Poznan, Poland and increased steadily throughout the year. By the fourth quarter, the plant was supplying almost all the product needed by the Polish domestic market, as well as exporting our brands to several other Central European markets. In St. Petersburg, Russia, site preparation for another Wrigley factory is underway; construction activity awaits the spring thaw. Production is anticipated to begin in early 1999. Again this year, Asia was your Company's fastest growing region. China led the way as our Wrigley team there expanded distribution and merchandising while ""heavying up'' advertising to support these eÅorts and build consumer demand for our brands. Construction crews are at work on a major addition to our Guangzhou factory to keep pace with volume that has grown at least 50% every year since this facility opened in 1993. In the Philippines, although domestic consumption was down in 1996, demand for our products in fast-growing export markets they service, such as Southeast Asia, continued to increase. Groundwork has begun for a factory to replace our existing 30-year-old facility. The new factory is expected to be up and running within two years. An interesting market under development in the Asian region is India. We have, up to this time, been concentrating on building a solid base of business in India's southern provinces. In 1997, your Company plans to extend its distribution, merchandising and advertising activities to other parts of the country. Although we have a long way to go, we continue to believe there is an opportunity to develop the long-term potential of this country with the second largest population in the world. Worldwide capital spending is expected to rise to record levels in 1997, and should top the 1996 total of $102 million. The capacity being added now will put your Company in a position to handle growth opportunities through the beginning of the next century. Less obvious but critical invest- ments in research and development are also under way to take your Company beyond the year 2000. Our scientists and technicians are constantly working on ways to improve our products. And they are exploring new technologies to maintain our competitive edge in manufacturing. While construction, manufacturing, research and marketing challenges remain formidable, our worldwide Wrigley team is up to the task. Our leadership position in the market and our reputation for quality and value are built upon a commitment by each Wrigley employee to achieve the very best. Across the Company, experienced and new employees alike strive to uphold this tradition and maintain our momentum. As always, we remain dedicated to building the business, not just for tomorrow and next year, but for the long run. With your support, we believe that we can continue to build for your Company's future on the foundation we are currently laying Ì state-of-the-art production facilities, high quality products, and well-executed distribution, merchandising and advertising strategies. Sincerely, William Wrigley HIGHLIGHTS OF OPERATIONS WM. WRIGLEY JR. COMPANY AND ASSOCIATED COMPANIES 1996 1995 In thousands of dollars except for per share amounts Net Sales $1,835,987 1,754,931 Earnings before factory closure 243,262 223,739 ÌPer Share of Common Stock 2.10 1.93 Net Earnings 230,272 223,739 ÌPer Share of Common Stock 1.99 1.93 Dividends Paid 118,308 111,401 ÌPer Share of Common Stock 1.02 .96 Property Additions 101,977 102,759 Stockholders' Equity 897,431 796,852 Return on Average Equity 27.2% 30.1% Stockholders at Close of Year 34,951 28,959 Average Shares Outstanding (000) 115,983 116,066 For additional historical Ñnancial data see page 22.