UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

410 North Michigan Avenue

Chicago, Illinois 60611

(Address of principal executive offices)

(312) 644-2121

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, no par value  

New York Stock Exchange

Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act

Class B Common Stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes þ    No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act.    Yes ¨    No þ

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 þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ            Accelerated filer ¨            Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes ¨    No þ

As of June 30, 2007, there were outstanding 216,858,217 shares of Common Stock, no par value, and the aggregate market value of the Common Stock (based upon the closing price of the stock on the New York Stock Exchange on June 30, 2007) held by non-affiliates was approximately $8,161,510,627. As of June 30, 2007, there were outstanding 57,606,232 shares of Class B Common Stock, no par value. Class B Common Stock carries ten votes per share, is not traded on the exchanges, is restricted as to transfer or other disposition, and is convertible into Common Stock on a share-for-share basis. Upon such conversion, the resulting shares of Common Stock are freely transferable and publicly traded. Assuming all shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on June 30, 2007 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $9,281,827,768. Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the Registrant is not bound by these determinations for any other purpose.

As of January 15, 2008, there were outstanding 217,515,229 shares of Common Stock, no par value, and the aggregate market value of the Common Stock (based upon the closing price of the stock on the New York Stock Exchange on January 15, 2008) held by non-affiliates was approximately $8,790,807,617. As of January 15, 2008, there were outstanding 56,453,637 shares of Class B Common Stock, no par value. Class B Common Stock carries ten votes, is not traded on the exchanges, is restricted as to transfer or other disposition, and is convertible into Common Stock on a share-for-share basis. Upon such conversion, the resulting shares of Common Stock are freely transferable and publicly traded. Assuming all shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on January 15, 2008 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $9,911,111,670. Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the Registrant is not bound by these determinations for any other purpose.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s (i) Notice of Annual Meeting and Proxy Statement, dated February 11, 2008, for the March 12, 2008 Annual Meeting of Stockholders (the “Proxy Statement”), and (ii) Annual Report to Stockholders for the fiscal year ended December 31, 2007 (the “2007 Annual Report”), are incorporated by reference into portions of Parts I, II, III and IV of this Report.

 

 

 


PART I

 

Item 1. Business

General

The Wm. Wrigley Jr. Company (the “Company” or “Wrigley”) is a Delaware corporation. From 1891 to 1903, the Company was operated as a partnership until its incorporation in Illinois as Wm. Wrigley Jr. Co. in December 1903. In November 1910, the Company was reincorporated under West Virginia law as Wm. Wrigley Jr. Company, and in October 1927, was reincorporated under the same name under Delaware law. Wrigley is a recognized leader in the confectionery field and the world’s largest manufacturer and marketer of chewing gum.

Wrigley products are sold in over 180 countries and, in the over 110 years since Wrigley introduced its first two products, Juicy Fruit® and Wrigley’s Spearmint®, its portfolio of products has grown to include many innovative brands that provide consumers with a variety of benefits, including breath freshening and tooth whitening. The Company’s principal business remains manufacturing and marketing chewing gum and other confectionery products worldwide. All other businesses constitute less than 10% of its consolidated revenues, operating profit and identifiable assets. Financial information on segments, as defined under U.S. generally accepted accounting principles, is set forth on pages 76 and 77 of the Company’s 2007 Annual Report under the caption “Segment Information”, which information is incorporated herein by reference.

Segments

For financial reporting purposes, management organizes the Company’s chewing gum and other confectionery business based principally on geographic regions. Descriptions of the Company’s reportable segments are as follows.

 

   

North America—These operations manufacture and market gum and other confectionery products in the U.S. and Canada.

 

   

EMEAI—These operations manufacture and market gum and other confectionery products principally in Europe as well as in the Middle East, Africa and India.

 

   

Asia—These operations manufacture and market gum and other confectionery products in a number of Asian geographies, including China, Taiwan and the Philippines.

 

   

Other Geographic Regions—These operations manufacture and market gum and other confectionery products in the Pacific and Latin American regions.

Acquisitions

In addition to internal product development, the Company has continued to enhance the portfolio of products it offers through the diversification of its business within the broader confectionery category.

On January 31, 2007, the Company acquired an 80 percent initial interest in A. Korkunov®, a privately held premium chocolate company in Russia. This acquisition provided the Company with an opportunity to enter the chocolate confectionery marketplace with a well recognized brand in a growing region.

In 2005, the Company acquired certain non-chocolate confectionery assets from Kraft Foods Global, Inc., including the purchase of the Life Savers®, Altoids®, Crème Savers®, and Sugus® brands. The purchase provided additional diversification in the key categories of mints and hard and chewy candy, expanded the Company’s product offering to customers worldwide, added scale and brand depth to the innovation pipeline and increased efficiency across the Company’s supply chain.

 

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In 2004, the Company acquired certain confectionery businesses of the Joyco Group from Agrolimen, a privately-held Spanish conglomerate. This transaction strengthened the Company’s operations in key geographies such as Spain, India and China by giving us a broader confectionery brand portfolio, access to additional distribution channels and enhanced manufacturing capabilities.

Production

In 2007, chewing gum and other confectionery products were manufactured in three factories in the United States and sixteen factories in other countries. Northwestern Flavors, LLC, a domestic wholly-owned subsidiary of the Company, processes flavorings and refined mint oil for the Company. In addition, four foreign facilities also manufacture gum base for the Company’s international production facilities and for third-party gum product manufacturers. Two others produce gum base for their own use. In 2005, the Company announced plans to restructure its North American production network in order to maximize supply chain efficiencies. As a result, in late 2006 the Company closed its chewing gum plant in Chicago, Illinois and its L.A. Dreyfus gum base subsidiary in Edison, New Jersey, and transferred production to remaining facilities. Also, in April, 2006, the Company closed the facility located in Bridgend, Wales which was acquired in the transaction with Kraft Foods Global, Inc.

Ingredients

Raw materials such as sugar, corn syrup, flavoring oils, polyols and high-intensity sweeteners blended to make chewing gum are readily available in the open market. Other ingredients and necessary packaging materials are also available and purchased in the open market. Inventory requirements of the Company are not materially affected by seasonal or other factors.

Sales

The Company markets chewing gum and other confectionery products primarily through distributors, wholesalers, corporate chains and cooperative buying groups that distribute the product through retail outlets with consumer purchases at the retail level generated primarily through the Company’s advertisements on television as well as in newspapers, magazines and other media, all designed to best reach consumers. Additional direct customers are vending distributors, concessionaires and other established customers purchasing in wholesale quantities.

Customer orders are usually received electronically, by mail, telephone, facsimile or e-mail and are generally shipped by truck from factory warehouses or leased warehousing facilities. In general, the Company does not offer its customers extended payment terms. It is typical for the general customer of the wholesale trade to purchase chewing gum and other confectionery requirements at intervals of approximately ten days to two weeks to assure fresh stocks and good turnover. The Company believes these conditions are not materially different from those of its competitors. On a consolidated basis, sales are relatively consistent throughout the year.

In 2007, the Company’s ten largest revenue producing countries outside of the United States were, in alphabetical order: Australia, Canada, China, France, Germany, Poland, Romania, Russia, Spain and the United Kingdom.

Product Development

Innovation has been a key element of Wrigley’s success. The Company holds numerous patents and patent applications relating to packaging, manufacturing processes and product formulas, including approximately 200 significant patents relating to packaging, chewing gum confection processing, product formula and sweetener

 

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encapsulation. Most of these patents expire in the countries in which they are registered at various times through the year 2021. While the Company considers its patent portfolio to be valuable, the Company does not believe that its business is dependent upon any single patent or group of related patents.

In addition, trademarks are of material importance to the Company globally. Generally, Wrigley products are marketed under trademarks owned by the Company. These trademarks are registered and maintained for brands of the Company’s products where appropriate. Generally, trademarks are valid as long as they are in use and/or their registrations are properly maintained. The Company actively monitors the registrations of its trademark and patent portfolios to ensure that the intellectual property is appropriately protected and maintained.

The Company maintains an active in-house research and development program, and also contracts with outside services for developing and improving Wrigley products, machinery and operations. In 2005, the Company opened its Global Innovation Center which is a state-of-the-art facility dedicated to the development of new products and the enhancement of the Company’s existing product lines. Information relating to the cost incurred by the Company for research and development in each of the last three fiscal years is set forth on page 55 of the Company’s 2007 Annual Report under the caption “Research and Development” and is incorporated herein by reference.

Competitive Conditions

The confectionery business is an intensely competitive one as all of the Company’s brands compete for retail shelf space with other advertised and branded products. The Company competes in over 180 countries and territories. In most marketplaces, there are two or three major competitors and generally half a dozen or more other companies competing for a share of the confectionery business. In the gum category, the Company is a worldwide leader. The Company competes primarily with Cadbury Adams and Mars Incorporated, on a global basis, and Lotte Co., Ltd. in Asia, Perfetti van Melle S.p.A. in Europe, the Middle East, Africa and India, and The Hershey Company in North America.

The continued growth of alternative store formats, product and packaging innovations, technological advances, and new industry techniques have all added variables for companies in the confectionery industry to consider in order to remain competitive. In all areas in which the Company distributes its products, principal elements of competition are a combination of competitive profit margins to the trade, level of product quality, brand recognition, product benefit and a fair consumer price. Positive factors pertaining to the Company’s competitive position include well-recognized brands, strong brand management, varied product offerings, product innovation and a strong distribution network.

Employees

As of December 31, 2007, the Company employed approximately 16,400 people worldwide.

Financial Information About Foreign and Domestic Operations

Information concerning the Company’s operations in different geographic areas for the years ended December 31, 2007, 2006 and 2005 is hereby incorporated by reference from the Company’s 2007 Annual Report on pages 76 and 77, under the caption “Segment Information,” and on pages 34 through 37 under the caption “Results of Operations.”

Available Information

Information regarding the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available in print, free of charge, to any stockholder who request them, or at the Company’s internet website at www.wrigley.com, as soon

 

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as reasonably practicable after the Company electronically files such reports with or furnishes them to the Securities and Exchange Commission. Copies of the materials filed by the Company with the Securities and Exchange Commission are available at the Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room is available by calling the Securities and Exchange Commission at 1-800-SEC-0330. Reports, proxy and information statements and other information regarding issues that file electronically with the SEC are available on the SEC’s website at www.sec.gov.

In addition, information regarding the Company’s corporate governance guidelines (entitled “Principles of Corporate Governance”) and code of ethics (entitled the “Code of Business Conduct”), and the charters of the Company’s Audit, Compensation and Corporate Governance Committees, are available free of charge on the Company’s website listed above or in print to any stockholder who requests them.

 

Item 1A. Risk Factors

Significant factors that could impact the Company’s business operations include, without limitation, the following:

Availability or retention of retail space. In those countries where the Company maintains leadership in the gum segment, the Company’s ability to retain preferred retail space allocation will impact results. If the Company is not able to retain this allocation, the Company’s results could be negatively impacted.

Availability of raw materials. The Company uses many raw materials to manufacture chewing gum and other confectionery products including sugar, corn syrup, flavoring oils, polyols and high intensity sweeteners. While these products are generally readily available on the open market, if the Company is unable to maintain the availability, pricing and sourcing of these raw materials, the Company’s results could be negatively impacted.

Changes in demographics and consumer preference. The Company operates in an increasingly competitive industry. As such, the Company’s continued success is dependent upon its ability to continue to create and market products which appeal to diverse consumers. Failure to adequately anticipate and react to changing demographics and product preferences, the failure of new or existing products to be favorably received or the Company’s inability to otherwise adapt to changing customer and consumer needs could result in increased capital, marketing or other expenditures or may result in a decrease in category share growth, any of which could have a material adverse effect on the Company’s operating results.

Changes in foreign currency and marketplace conditions. Manufacturing and sales of a significant portion of the Company’s products are outside the United States. The majority of countries in which the Company operates tend to be politically, socially and economically stable. To the extent there is political or social unrest, civil war, terrorism or significant economic instability, the results of the Company’s business in such countries could be negatively impacted. In addition, given the global nature of our business, we earn revenue, pay expenses, incur liabilities and hold assets in a variety of foreign currencies which we translate into U.S. Dollars for financial reporting purposes at the then-applicable exchange rate. Consequently, volatility in foreign currencies and the U.S. Dollar could have a material adverse effect on the Company’s results of operations.

Increased competition, discounting and other competitive actions. The Company competes worldwide with other well-established manufacturers of confectionery products, including chewing gum. In addition, the Company’s results may be negatively impacted by ineffective advertising, or by our failure to sufficiently counter aggressive competitive actions. In addition, discounting and other competitive actions may also make it more difficult for the Company to maintain its operating margins.

Underutilization of or inadequate manufacturing capacity. Unanticipated movements in consumer demands could result in inadequate manufacturing capacity or underutilization of the Company’s manufacturing capacity, which could negatively impact manufacturing efficiencies and costs.

 

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Governmental regulations. Government regulations with respect to import duties, tariffs, taxes and environmental controls, both in and outside the United States, could negatively impact the Company’s costs and ability to compete in domestic or foreign marketplaces.

Labor stoppages. To the extent the Company experiences any material labor stoppages, such disputes or strikes could negatively affect shipments from suppliers or shipments of finished product.

Outcome of integrating acquired businesses. The Company’s inability to successfully integrate any acquired businesses or assets could cause actual results to differ from anticipated results or expectations of the business.

Forward-Looking Statements

This report and any documents incorporated by reference may include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21 E of the Exchange Act. Statements and financial disclosure that are not historical facts are forward-looking statements within the meaning of such regulations, as well as the Private Securities Litigation Reform Act of 1995. These statements or disclosures may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to the Company, based on current beliefs of management, as well as assumptions made by, and information currently available to, the Company.

Forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. Although the Company believes these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary. Significant factors that may cause actual results to differ materially from the forward-looking statements are included in the section entitled “Risk Factors” (refer to Part I, Item 1A) and those listed from time to time in the Company’s filings with the Securities and Exchange Commission and the risk factors or uncertainties listed herein or listed in any document incorporated by reference herein. The factors identified are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on the Company. All forward-looking statements included in this report and in the documents incorporated by reference herein are expressly qualified in their entirety by the foregoing cautionary statements. Except as required by law, the Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Properties

The information below relates to the principal properties of the Company organized by reportable segments. These properties are primarily devoted to confectionery production or raw materials processing. In the case of each factory listed below, the information also includes some office and warehouse facilities. Also, the Company maintains primarily leased branch sales offices and warehouse facilities in the United States and abroad.

 

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The Company considers the properties listed below to be in good condition, well maintained and suitable to carry out the Company’s business. All properties are owned by the Company unless otherwise indicated.

 

Property and Location

  

Types of Products
Manufactured

   Approximate Square
Footage of Facility

Factories

     

North America Region

     

Chattanooga, Tennessee(1)

   Candy    210,000

Don Mills, Ontario, Canada

   Gum    219,000

Gainesville, Georgia

  

Gum and raw materials

(gum base)

   550,000

West Chicago, Illinois

  

Raw materials

(flavors)

   59,000

Yorkville, Illinois

   Gum and candy    203,000

EMEAI Region

     

Plymouth, England

   Gum    379,000

Biesheim, France

  

Gum, candy and raw materials

(gum base)

   516,000

Bangalore, India

  

Gum and raw materials

(gum base)

   36,000

Baddi, India

  

Gum, candy and raw materials

(gum base)

   145,000

Nairobi, Kenya

   Gum    53,000

Poznan, Poland

   Gum and candy    327,000

Odintsovo District, Russia

   Chocolate    229,000

St. Petersburg, Russia

   Gum and candy    264,000

Tarazona, Spain

   Gum and candy    109,000

Santiga, Spain(2)

   Raw materials (gum base)    94,000

Asia Region

     

Guangzhou, China(3)

   Gum    233,000

Panyu, China(3)

   Gum and candy    343,000

Shanghai, China(3)

  

Gum, candy and raw materials

(gum base)

   430,000

Antipolo, Philippines

   Gum    76,000

Tamsui, Taiwan

   Gum    104,000

Other Geographic Regions

     

Asquith, N.S.W., Australia

   Gum    145,000

Silao, Mexico

   Gum    34,000

Office Buildings(4)

     

Wrigley Building, Chicago, Illinois

      147,000

600 West Chicago, Chicago, Illinois

      172,000

Goose Island, Chicago, Illinois

      134,000

EMEAI Regional Offices, Unterhaching, Germany

      44,000

Research and Development

     

Global Innovation Center, Chicago, Illinois(5)

      193,000

 

(1) In November 2006, the Company entered into a lease with The Industrial Development Board of the County of Hamilton, Tennessee for this facility. The term of the lease expires on December 31, 2018.

 

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(2) Includes a leased warehouse facility of approximately 36,200 square feet.
(3) In China, the Company has a 50-year lease on each of the three factories with the relevant Chinese economic technological development authorities, with expiration dates as follows:
  (i) Guangzhou—November 14, 2039;
  (ii) Panyu—July 6, 2050; and
  (iii) Shanghai—November 20, 2051.
(4) These buildings are the Company’s principal non-manufacturing properties. The Wrigley Building houses the offices of the Company’s corporate headquarters. The EMEAI (Europe, Middle East, Africa and India) Regional Offices in Unterhaching, Germany, house the regional sales and administrative offices for the Company’s EMEAI region and German operations. The 600 West facility, where the Company leases 147,860 square feet, houses, among other groups, the U.S. sales and supply and procurement groups for the Company. Separate facilities located on Goose Island house the Company’s Global Information Technology Group and the Global Engineering Group.
(5) This building houses the Company’s principal research and development activities, consisting of laboratories, offices and infrastructure.

 

Item 3. Legal Proceedings.

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Executive Officers of the Registrant

All officers are elected for a term which ordinarily expires on the date of the meeting of the Board of Directors immediately following the Annual Meeting of Stockholders. The positions and ages listed below are as of December 31, 2007. There were no arrangements or understandings between any of the officers and any other person(s) pursuant to which such officers were elected.

Executive Leadership Team

 

Name

   Age   

Position

William Wrigley, Jr.

   44   

Executive Chairman and Chairman of the Board of Directors

William D. Perez

   60   

President, Chief Executive Officer and Director

Reuben Gamoran

   47   

Senior Vice President and Chief Financial Officer

Mary Kay Haben

   51   

Group Vice President and Managing Director—North America

Peter Hempstead

   57   

Senior Vice President—Worldwide Strategy and New Business

Surinder Kumar

   63   

Senior Vice President and Chief Innovation Officer

Howard Malovany

   57   

Senior Vice President, Secretary and General Counsel

Dushan Petrovich

   54   

Senior Vice President and Chief Administrative Officer

Igor Saveliev

   46   

Group Vice President and Managing Director—East/South Europe

Martin Schlatter

   42   

Vice President and Chief Marketing Officer

Michael Wong

   54   

Group Vice President and Managing Director—Asia/Pacific

 

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Other Executive Officers   

Name

   Age   

Position

John Adams

   61   

Vice President—Worldwide Supply Chain

Maxim Grishakov

   32    Vice President—Managing Director—Russia

Susan Henderson

   55   

Vice President—Corporate Communications

Donagh Herlihy

   44   

Vice President—People, Learning & Development and Chief Information Officer

Carol Knight

   61   

Vice President—Scientific and Regulatory Affairs

Shaun Mara

   43    Vice President and Controller

Patrick D. Mitchell

   52   

Vice President—Worldwide Procurement and Chief Procurement Officer

Jon Orving

   58    Vice President—Nordic

Alan J. Schneider

   62   

Vice President and Treasurer

Tawfik Sharkasi

   57   

Vice President and Chief Science and Technology Officer

Samson Suen

   58   

Vice President and Managing Director—China

Executive Leadership Team

William Wrigley, Jr.,Executive Chairman and Chairman of the Board of Directors—Mr. Wrigley, Jr. served as the Company’s Chairman of the Board, President and Chief Executive Officer from 2004 until 2006 when he was appointed Executive Chairman and Chairman of the Board of Directors. Prior to 2004, Mr. Wrigley, Jr. served as the Company’s President and Chief Executive Officer from 1999 to 2003, its Vice President from 1992 through 1999, its Vice President and Assistant to the President from 1991 through 1992, and its Assistant to the President from 1985 through 1991.

William D. PerezPresident and Chief Executive Officer and Director—Mr. Perez was elected President, Chief Executive Officer and a member of the Company’s Board of Directors in 2006. Prior to joining the Company, Mr. Perez spent 34 years with S.C. Johnson & Son, Inc., including eight years as President and Chief Executive Officer of the multi-billion dollar privately held global consumer products company. In 2004, Mr. Perez joined Nike, Inc., where he served as President and Chief Executive Officer until 2006.

Reuben GamoranSenior Vice President and Chief Financial Officer—In 2006, Mr. Gamoran was elected Senior Vice President and Chief Financial Officer of the Company. Prior to his current position, Mr. Gamoran served as the Company’s Controller—International from 1996 until 1999, its Controller from 1999 through 2001, and its Vice President and Controller from 2001 through 2003. From 2004 through 2005, Mr. Gamoran was the Company’s Vice President and Chief Financial Officer.

Mary Kay HabenGroup Vice President and Managing DirectorNorth America—Ms. Haben was elected Group Vice President and Managing Director—North America in 2007. Prior to joining the Company, Ms. Haben spent 27 years with Kraft, Inc., a multi-billion dollar global food company, most recently as the Senior Vice President, Open Innovation. From 2000 to 2004, Ms. Haben served as Kraft’s Group Vice President responsible for cheese, meals and enhancers and from 2004 to 2006, she served as Kraft’s Senior Vice President responsible for the global convenient meals, grocery and snack sectors.

Peter HempsteadSenior Vice PresidentWorldwide Strategy and New Business—In 2004, Mr. Hempstead was elected to serve as the Company’s Senior Vice President—Worldwide Strategy and New Business. From 1999 through 2003, Mr. Hempstead served as the Company’s Senior Vice President—International.

 

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Surinder KumarSenior Vice President and Chief Innovation Officer—Dr. Kumar joined the Company in 2001 as Chief Innovation Officer, and in 2003 was elected Senior Vice President & Chief Innovation Officer.

Howard MalovanySenior Vice President, Secretary and General Counsel—Mr. Malovany was elected Senior Vice President, Secretary and General Counsel of the Company in 2007. Prior to his current position, Mr. Malovany served as the Company’s Assistant Secretary and Senior Counsel from 1996 to 1998, as the Company’s Secretary and General Counsel from 1998 to 2001 and as the Company’s Vice President, Secretary and General Counsel from 2001 to 2007.

Dushan PetrovichSenior Vice President and Chief Administrative Officer—Mr. Petrovich was elected Senior Vice President and Chief Administrative Officer in 2004. Prior to his current position, Mr. Petrovich served as the Company’s Treasurer from 1992 to 1993, Vice President—Treasurer from 1993 to 1996, Vice President—Controller from 1996 to 1999, Vice President—Organizational Development from 1999 to 2000 and Vice President from 2000 to 2001. In 2001, Mr. Petrovich was elected Vice President—People, Learning and Development and in 2002 he was elected Senior Vice President—People, Learning and Development.

Igor SavelievGroup Vice President and Managing DirectorEast/South Europe—Mr. Saveliev was elected Group Vice President and Managing Director—East/South Europe in 2007. Mr. Saveliev joined the Company in 1995 as Executive Director—Russia. Until his present position, Mr. Saveliev served the Company as General Manager—EMEAI East between 2000 and 2004, Regional Vice President—East and Central Europe from 2004 to 2005 and Vice President and Managing Director—East and Central Europe from 2005 to 2007.

Martin SchlatterVice President and Chief Marketing Officer—Mr. Schlatter was elected Vice President and Chief Marketing Officer in 2006 until which time he served as the General Manager for Wrigley’s U.S. Commercial Business since 2004. From 2002 to 2004, Mr. Schlatter served as the Company’s Director—New Business Development and in 2004 was appointed the Company’s Senior Director—New Business Development.

Michael WongGroup Vice President and Managing DirectorAsia/Pacific—Mr. Wong was elected Group Vice President and Managing Director—Asia/Pacific in 2007. Prior to his current position, Mr. Wong served as the Company’s Regional Managing Director—North Asia from 1998 to 2000, Vice President—International & Managing Director—Asia from 2000 to 2005 and Vice President and Managing Director—Asia from 2005 to 2007.

Other Executive Officers

John AdamsVice PresidentWorldwide Supply Chain—Mr. Adams was elected Vice President—Worldwide Supply Chain in 2007 prior to which, Mr. Adams served as the Company’s Vice President—Worldwide Manufacturing since 2006. Mr. Adams joined the Company in 1999 as Senior Director, Manufacturing Operations in Europe, Middle East and Africa, and in 2001, served as Senior Director, Supply Chain.

Maxim GrishakovVice PresidentManaging DirectorRussia—Maxim Grishakov was elected Vice President and Managing Director—Russia in 2007. Prior to 2007, he served as the General Manager for Russia. From 2000 to 2004, Mr. Grishakov served as the marketing director for Russia and EMEAI East Region, and, prior to that, was in charge of the marketing operations in Russia.

 

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Susan HendersonVice PresidentCorporate Communications—Ms. Henderson was elected Vice President—Corporate Communications in 2006. Prior to joining the Company, Ms. Henderson was the Vice President, Public Relations of Kohl’s Department Stores from 2000 until 2003 and the President of Henderson Consulting from 2003 until 2005.

Donagh HerlihyVice PresidentSupply Chain Strategy and Planning and Chief Information Officer—Mr. Herlihy was elected Vice President—Supply Chain Strategy and Planning and Chief Information Officer in 2007. He served as the Company’s Vice President—People, Learning & Development and Chief Information Officer from 2006 to 2007 and as the Vice President—Chief Information Officer from 2000 to 2006.

Carol KnightVice PresidentScientific and Regulatory Affairs—Dr. Knight was elected Vice President—Scientific and Regulatory Affairs in 2006 and served as the Company’s Senior Director—Scientific and Regulatory Affairs from 2003 to 2006. Prior to joining the Company, from 2000 to 2003, Dr. Knight served as the President of Knight International, a company providing international scientific and regulatory strategy and consulting within the food industry.

Shaun MaraVice President and Controller—Mr. Mara was elected as Vice President and Controller in 2006. From 2005 to 2006, Mr. Mara served as the Company’s Vice President Finance, Commercial Operations and from 2002 to 2004 as the Company’s Senior Director Finance, Americas.

Patrick D. MitchellVice PresidentWorldwide Procurement and Chief Procurement Officer—Mr. Mitchell was elected Vice President—Worldwide Procurement and Chief Procurement Officer in 2006 with responsibility for the Company’s global procurement activities. Prior to his current position, Mr. Mitchell served as the Company’s Vice President—Worldwide Procurement from 2002 to 2006.

Jon OrvingVice PresidentNordic—Mr. Orving was elected Vice President—Nordic in 2005. Until his present position, Mr. Orving served as the Managing Director of Wrigley Scandinavia AB, Sweden from 1983 to 1993, Vice President—International from 1993 to 2001 and Vice President—International & Managing Director—North Region from 2001 to 2005.

Alan J. Schneider—Vice President and Treasurer—Mr. Schneider was elected Vice President and Treasurer in 2001. Prior to 2001, Mr. Schneider served as the Company’s Treasurer since 1996.

Tawfik SharkasiVice President and Chief Science and Technology Officer—Dr. Sharkasi was elected Vice President and Chief Science and Technology Officer in 2007. Dr. Sharkasi joined the Company in 2004 as Vice President—Research & Development, Gum. He served as the Company’s Vice President—Research and Development from 2005 to 2007 and thereafter as the Company’s Vice President—Research & Development—Gum and Confections. Prior to joining the Company, he was employed by Nestle from 1994 to 2004, most recently as Director of Research & Development—Ice Cream.

Samson SuenVice President and Managing Director—China—Mr. Suen was elected Vice President and Managing Director—China in 2005. Mr. Suen joined the Company in 1979 as Marketing Manager—Hong Kong and became Managing Director—Hong Kong later that year. Leading up to his present position, Mr. Suen held various senior management positions in the Company’s subsidiaries in Hong Kong, Indonesia, Taiwan and, most recently, as General Manager of Wrigley China.

 

10


PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Market Information

As of December 31, 2007, the Company had two classes of stock outstanding: Common Stock, listed on both the New York and Chicago Stock Exchanges, and Class B Common Stock, for which there is no trading market. Shares of the Class B Common Stock were issued by the Company on April 11, 1986 to stockholders of record on April 4, 1986. Additionally, shares of Class B Common Stock were issued pursuant to a one-time 5 for 4 stock split (in the form of a 25% stock dividend) in which one share of Class B Common Stock was issued for every 4 shares of Common Stock and every 4 shares of Class B Common Stock held as of the close of business on April 17, 2006. Class B Common Stock is entitled to ten votes per share, is subject to restrictions on transfer or other disposition and is, at all times, convertible on a share-for-share basis into shares of Common Stock. The closing price of the Company’s Common Stock on the New York Stock Exchange on January 15, 2008 was $58.61. Information regarding the high and low sales price for the Common Stock for each full quarterly period within the two most recently completed fiscal years is set forth in the Company’s 2007 Annual Report on page 43 under the caption “Market Prices” and is incorporated herein by reference.

(b) Holders

As of January 15, 2008, there were 41,020 stockholders of record holding Common Stock and 24,905 stockholders of record holding Class B Common Stock.

(c) Dividends

Dividends, which are identical on both Common Stock and Class B Common Stock, are declared at scheduled meetings of the Board of Directors and announced immediately upon declaration. Information regarding the high and low quarterly sales prices for the Common Stock on the New York Stock Exchange and dividends declared per share on a quarterly basis for both classes of stock for the two-year period ended December 31, 2007 is set forth in the Company’s 2007 Annual Report on page 43 under the captions “Market Prices” and “Dividends” and is incorporated herein by reference.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information for all equity compensation plans as of the fiscal year ended December 31, 2007, under which the equity securities of the Company were authorized for issuance:

 

Plan Category

   Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights

(a)
   Weighted
Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights

(b)
   Number of
Securities
Remaining or
Available for
Future Issuance
under Equity
Compensation
  Plans (excluding  
Securities
Reflected in
(column (a))

(c)
 

Equity compensation plans approved by security holders(1)

   14,869,608    $ 50.16    17,878,062  

Equity compensation plans not approved by security holders

   -0-      -0-    -0-  

Total

   14,869,608    $ 50.16    17,878,062 (2)

 

(1)

Includes shares and share units of Common Stock of the Company authorized for awards under the various programs of the Company’s 1997 Management Incentive Plan, as amended, and the 2007 Management Incentive Plan (collectively, the “MIPs”). Descriptions of the various programs under the MIPs are, with

 

11


 

respect to Directors, set forth on pages 40 through 41 and with respect to the officers, set forth on pages 19 through 25 of the Company’s Proxy Statement, which descriptions are incorporated herein by reference. No specific amount of shares has been dedicated to any particular program within the MIPs. In the aggregate, 25,000,000 shares are authorized under the 1997 Management Incentive Plan and 20,000,000 shares are authorized under the 2007 Management Incentive Plan.

(2) Excludes shares to be issued upon completion of the Long Term Stock Grant Program 5-year performance cycles which began in 2003, 2004, 2005, 2006 and 2007 and unvested restricted stock units.

Shares awarded under all above plans may be newly issued, from the Company’s treasury or acquired in the open market.

(b) Not applicable

(c) Issuer Purchases of Equity Securities.

 

Period

   Total
Number of
Shares
Purchased
(a)
   Average
Price
Paid per
Share
(b)
   Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Share
Repurchase
Plan(i)

(c)
   Approximate
Dollar Value

of Shares that
May Yet be
Purchased
Under the
Share
Repurchase
Programs

(d)

October 1st - October 31st

   -0-    $ -0-    -0-    $ -0-

November 1st - November 30th

   -0-    $ -0-    -0-    $ -0-

December 1st - December 31st

   559,898    $ 60.16    559,898    $ 253,660,000

 

(i) Represents actual number of shares purchased under the Board of Directors’ authorized and publicly announced Share Repurchase Program resolution of May 19, 2006, to purchase up to $500,000,000 of shares, in the open market. At December 31, 2007, approximately $253,660,000 remains available for repurchase under this program. On February 1, 2008, the Board of Directors authorized an additional stock repurchase of $800,000,000. This additional authorization will follow the completion of the $500,000,000 authorized by the Board of Directors in 2006. These share repurchase programs will expire when the authorized amounts are completely utilized.

 

Item 6. Selected Financial Data

An eleven-year summary of selected financial data for the Company is set forth in the Company’s 2007 Annual Report under the following captions and page numbers and is incorporated herein by reference: “Operating Data” and “Other Financial Data” on pages 44 and 45, respectively.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of results of operations and financial condition, including a discussion of liquidity and capital resources and the accompanying forward looking and cautionary statements, is set forth in the Company’s 2007 Annual Report on pages 33 through 42 and is incorporated herein by reference.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Disclosure about market risk is set forth on pages 40 and 41 of the Company’s 2007 Annual Report under the heading “Market Risk” and is incorporated herein by reference.

 

12


Item 8. Financial Statements and Supplementary Data

The Company’s audited consolidated financial statements, accounting policies and notes to consolidated financial statements, with the reports of management and the independent registered public accounting firm, at December 31, 2007, and 2006 and for each of the three years in the period ended December 31, 2007, are set forth in the Company’s 2007 Annual Report on pages 47 through 77, and selected unaudited quarterly data-consolidated results for the years ended December 31, 2007, and 2006 are set forth in the Company’s 2007 Annual Report on page 43 under the caption “Quarterly Data,” and all such pages are incorporated herein by reference.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

Item 9A. Controls and Procedures

(i) Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007.

(ii) Internal Control Over Financial Reporting.

(a) Management’s annual report on internal control over financial reporting.

The Company’s management report on internal control over financial reporting is set forth in the Company’s 2007 Annual Report on page 47 and is incorporated herein by reference.

(b) Attestation report of the registered public accounting firm.

The attestation report of Ernst & Young LLP, the Company’s independent registered public accounting firm, on the effectiveness of the Company’s internal control over financial reporting is set forth in the Company’s 2007 Annual Report on page 48 and is incorporated herein by reference.

(c) Changes in internal control over financial reporting.

There was no change in the Company’s internal control over financial reporting during the Company’s fourth fiscal quarter ended December 31, 2007, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

None.

 

13


PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

Information regarding directors and nominees for directorship is set forth in the Company’s Proxy Statement on pages 5 through 7 under the caption “Election of Class III Directors” and is incorporated herein by reference. For information concerning the Company’s executive officers, see “Executive Officers of the Registrant” set forth in Part I hereof. Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company’s Proxy Statement on page 48 under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference. Information regarding the Company’s code of ethics is set forth in the Company’s Proxy Statement on page 11 under the caption “Code of Ethics” and is herein incorporated by reference. Information regarding the Company’s Audit Committee, Corporate Governance and Nominating Committee are set forth in the Company’s Proxy Statement on pages 8 through 14 under the caption “Corporate Governance” and is incorporated herein by reference.

 

Item 11. Executive Compensation.

Information regarding the compensation of directors and executive officers is set forth in the Company’s Proxy Statement on pages 15 through 40, and 40 through 42 under the general captions “Executive Compensation” and “Director Compensation,” respectively, and is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners, of all directors and nominees, of the named executive officers, and of directors and executive officers as a group, is set forth in the Company’s Proxy Statement on pages 43 through 45 under the captions “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” and is incorporated herein by reference.

 

Item 13. Certain Relationships and Related Transactions, Director Independence.

Information regarding certain relationships is hereby incorporated by reference from the Company’s Proxy Statement on page 8 under the headings “Corporate Governance Guidelines” and “Related Party Transactions”, and pages 43 through 45 under the headings “Security Ownership or Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners.” Information regarding director independence is hereby incorporated by reference from pages 8 through 9 of the Company’s Proxy Statement under the heading “Director Independence.”

 

Item 14. Principal Accountant Fees and Services.

Information regarding principal accountant fees and services is incorporated by reference from the Company’s Proxy Statement on page 47 under the heading “Service Fees Paid to the Independent Registered Public Accounting Firm.”

 

14


PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements

See the Index to Financial Statements and Financial Statement Schedule, which is included on page F-1 of this Report.

(a)(2) Financial Statement Schedules

The following financial statement schedule, located at page F-2 of this Report, is included in Part II, Item 8 of this Report: Schedule II — Valuation and Qualifying Accounts.

7(a)(3) Exhibits

The following exhibits were previously filed unless otherwise noted.

 

Exhibit
Number

  

Description of Exhibit

1.    Underwriting Agreement
   (a)    Underwriting Agreement dated July 11, 2005, between Wm. Wrigley Jr. Company and Goldman Sachs & Co., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the Underwriters (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 14, 2005).
3.    Articles of Incorporation and Bylaws
   (a)(i)   

Restated Certificate of Incorporation of Wm. Wrigley Jr. Company, as amended by the Certificate of Amendment No. 2 to the Restated Certificate of Incorporation of Wm. Wrigley Jr. Company dated April 4, 2006, and as further amended by the Certificate of Amendment of Restated Certificate of Incorporation dated March 15, 2007 (incorporated by reference from Exhibit 3(a)(v) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007).

   (b)(i)   

The Registrant’s Amended and Restated Bylaws, effective March 5, 2002, as amended on October 20, 2006, February 6, 2007 and March 15, 2007 (incorporated by reference from Exhibit 3(b)(iv) to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended March 31, 2007).

4.    Instruments defining the rights of security holders
   (a)    The Stockholder Rights Plan (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 5, 2001).
   (b)    Senior Indenture, dated as of July 14, 2005, by and between Wm. Wrigley Jr. Company and J.P. Morgan Trust Company, National Association as trustee (incorporated by reference from Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on July 14, 2005).
   (c)    Officers’ Certificate of Wm. Wrigley Jr. Company establishing the terms of the 4.30% Senior Notes due 2010 (incorporated by reference from Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on July 14, 2005).
   (d)    Officers’ Certificate of Wm. Wrigley Jr. Company establishing the terms of the 4.65% Senior Notes due 2015 (incorporated by reference from Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on July 14, 2005).

 

15


   (e)    Form of Global Note representing the 4.30% Senior Notes due 2010 (incorporated by reference from Exhibit 99.5 to the Company’s Current Report on Form 8-K filed on July 14, 2005).
   (f)    Form of Global Note representing the 4.65% Senior Notes due 2015 (incorporated by reference from Exhibit 99.6 to the Company’s Current Report on Form 8-K filed on July 14, 2005).
10.    Material Contracts
   (a)    Non-Employee Director’s Death Benefit Plan (incorporated by reference from the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1995).
   (b)    Senior Executive Insurance Plan (incorporated by reference from the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1995).
   (c)    Supplemental Retirement Plan (incorporated by reference from the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1995).
   (d)    Wm. Wrigley Jr. Company 1997 Management Incentive Plan. The Registrant’s Amended Management Incentive Plan, effective as of March 9, 2004 (“MIP”) is incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004.
   (e)    Deferred Compensation Program for Non-Employee Directors under the MIP (incorporated by reference from Exhibit 10(e) to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004).
   (f)    Stock Deferral program for Non-Employee Directors under the MIP (incorporated by reference from Exhibit 10(f) to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004).
   (g)    Stock Award Program under the MIP as amended, effective as of January 1, 2005 (incorporated by reference from Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 28, 2005).
   (h)    Executive Incentive Compensation Deferral Program under the MIP, as amended, effective as of January 1, 2005 (incorporated by reference from Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on October 28, 2005).
   (i)    Forms of Change-in-Control Severance Agreement (incorporated by reference from Exhibits 10(h) and 10(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
   (j)    Asset Purchase Agreement dated November 14, 2004, between Kraft Foods Global, inc. and Wm. Wrigley Jr. Company (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on November 18, 2004).
   (k)    Restricted Stock Program under the MIP (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 22, 2005).
   (l)    Commercial Paper Dealer Agreement dated April 29, 2005, between Wm. Wrigley Jr. Company and Merrill Lynch Money Markets, Inc. and Merrill Lynch Pierce, Fenner & Smith Incorporated (incorporated by reference from Exhibit 99.1(a) to the Company’s Current Report on Form 8-K field on may 4, 2005).
   (m)    Commercial Paper Dealer Agreement dated April 29, 2005, between Wm. Wrigley Jr. Company and Goldman Sachs & Co. (incorporated by reference to Exhibit 99.1(b) to the Company’s Current Report on Form 8-K filed on May 4, 2005).

 

16


   (n)    Commercial Paper Dealer Agreement dated April 29, 2005, between Wm. Wrigley Jr. Company and J.P. Morgan Securities Inc. (incorporated by reference from Exhibit 99.1(c) to the Company’s Current Report on Form 8-K filed on May 4, 2005).
   (o)    Issuing and Paying Agency Agreement dated April 29, 2005, between Wm. Wrigley Jr. Company and JP Morgan Chase Bank, N.A. (incorporated by reference from Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on May 4, 2005).
   (p)    Credit Agreement, dated as of July 14, 2005, among Wm. Wrigley Jr. Company, the Lenders thereto and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 15, 2005).
   (q)    Wm. Wrigley Jr. Company 2007 Management Incentive Plan, effective as of January 1, 2007 (incorporated by reference from Exhibit 10(t) from the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended March 31, 2006).
   (r)    Voluntary Separation Agreement and General Release dated May 1, 2006, between Wm. Wrigley Jr. Company and Mr. Ronald V. Waters (incorporated by reference from Exhibit 10(u) to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended March 31, 2006).
   (s)    Voluntary Separation Agreement and General Release between Wm. Wrigley Jr. Company and Mr. Darrell Splithoff, effective July 12, 2006 (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 18, 2006).
   (t)    Amendment No. 1 to Credit Agreement dated as of May 17, 2007 (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 18, 2007).
   (u)*    Wm. Wrigley Jr. Company Long Term Stock Grant Program (as amended and restated effective January 1, 2008).
   (v)*    Wm. Wrigley Jr. Stock Option Program (as amended and restated effective January 1, 2008).
   (w)*    Wm. Wrigley Jr. Executive Incentive Compensation Program (as amended and restated effective January 1, 2008).
   (x)*    Amendment Number One to the Wm. Wrigley Jr. Company Supplemental Retirement Plan and Amendment Number Two to the Wm. Wrigley Jr. Company Supplemental Retirement Plan dated February 5, 2007.
13.*    2007 Annual Report to Stockholders of the Registrant
14.    Code of Ethics—Code of Business Conduct (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003).
21.*    List of Subsidiaries of the Registrant.
23.*    Consent of Independent Registered Public Accounting Firm.
24.*    Power of Attorney of each independent director signed January 2008.
31.*    Rule 13a-14(a)/15d-14(a) Certification of:
   (a)    Mr. William D. Perez, President and Chief Executive Officer; and
   (b)    Mr. Reuben Gamoran, Senior Vice President and Chief Financial Officer.

 

17


32.*    Section 1350 Certification of:
   (a)    Mr. William D. Perez, President and Chief Executive Officer; and
   (b)    Mr. Reuben Gamoran, Senior Vice President and Chief Financial Officer.

 

* Indicates that such document is filed herewith.

Copies of Exhibits are not attached hereto, but the Registrant will furnish then upon request and upon payment to the Registrant of a fee in the amount of $20.00 representing reproduction and handling costs.

 

18


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

WM. WRIGLEY JR. COMPANY

(Registrant)

By:   /s/    Shaun Mara         
 

Shaun Mara

Vice President and Controller

Authorized Signatory and Chief Accounting Officer

Date: February 11, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K for the fiscal year ended December 31, 2007, has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

/s/    William Wrigley, Jr.        

William Wrigley, Jr.

  

Executive Chairman, Chairman of the Board and Director

/s/    William D. Perez        

William D. Perez

   President, Chief Executive Officer and Director

/s/    Reuben Gamoran        

Reuben Gamoran

   Senior Vice President and Chief Financial Officer

*

John F. Bard

   Director

*

Howard B. Bernick

   Director

*

Thomas A. Knowlton

   Director

*

John Rau

   Director

*

Melinda R. Rich

   Director

*

Steven B. Sample

   Director

 

19


Signature

  

Title

*

Alex Shumate

   Director

*

Richard K. Smucker

   Director

 

*By:   /s/    Howard Malovany         
 

Howard Malovany

Senior Vice President, Secretary and General Counsel

Date: February 11, 2008

 

20


WM. WRIGLEY JR. COMPANY

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES

(Item 15(a))

 

     Reference
     Form
10-K
Report
   Annual
Report to
Stockholders

Data incorporated by reference from the Company’s Annual Report:

     

Consolidated statement of earnings for the years ended December 31, 2007, 2006 and 2005

      49

Consolidated balance sheet as of December 31, 2006 and 2007

      50-51

Consolidated statement of cash flows for the years ended December 31, 2007, 2006 and 2005

      52

Consolidated statement of stockholders’ equity for the years ended December 31, 2007, 2006 and 2005

      53

Accounting policies and notes to consolidated financial statements

      54-77

Consolidated financial statement schedule for the years ended December 31, 2007, 2006 and 2005 Schedule II — Valuation and Qualifying Accounts

   F-2   

All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or accounting policy notes thereto.

With the exception of the pages listed in the above index and the Items referred to in Items 1, 5, 6, 7, 7A, 8 and 9A of this Form 10-K Report, the Company’s 2007 Annual Report is not to be deemed filed as part of this Form 10-K Report.

 

F-1


WM. WRIGLEY JR. COMPANY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

 

Column A

   Column B    Column C    Column D    Column E    Column F
          Additions          

Description

   Balance at
Beginning
of Period
   Charged to
Costs and
Expenses
   Charged to
Other
Accounts
   Deductions(A)    Balance at
End of Period
     (In thousands)

Allowance for Doubtful Accounts:

              

2007

   $ 6,431    2,724    —      3,364    5,791

2006

   $ 8,013    1,164    —      2,746    6,431

2005

   $ 11,682    1,193    —      4,862    8,013

 

(A) Uncollectible accounts written-off, net of recoveries.

 

F-2

WM. WRIGLEY JR. COMPANY

LONG TERM STOCK GRANT PROGRAM

(As Amended and Restated Effective January 1, 2008)

Incorporated into and adopted under the Wm. Wrigley Jr. Company 1997 Management Incentive Plan, 2007 Management Incentive Plan, and any successor thereto

This Long Term Stock Grant Program (the “Program”) is hereby amended and restated, effective as of January 1, 2008, as set forth herein, and as amended will be integrated into and become a part of the 1997 Management Incentive Plan, as amended, the 2007 Management Incentive Plan, as amended, or any successor thereto (the “MIP”).

A. PURPOSES

The Program is designed to enable eligible executives of the Wm. Wrigley Jr. Company (the “Company”) to share in the future success of the Company’s business by providing them an opportunity to earn shares of the Common Stock of the Company (the “Common Stock”), through the award of stock grants (“Grants” or “Long Term Stock Grants”) contingent upon achieving certain performance measures and to defer all or any portion of such Grants pursuant to the Company’s Executive Compensation Deferral Program (the “Deferral Program”). Inasmuch as the executives eligible to receive Grants under the Program are those in positions to make significant and direct contributions to the success of the Company, the Program is intended, accordingly, to promote a closer identity of interests between eligible employees and stockholders.

B. STOCK GRANT TERMS AND CONDITIONS

1. Eligibility and Participation

All elected officers and other key employees who are considered by the Compensation Committee (the “Committee” or the “Compensation Committee”) of the Board of Directors of the Company (the “Board” or the “Board of Directors”) to have a significant impact on the business of the Company are eligible to be designated as participants (“Participants”) and to receive Long Term Stock Grants under the Program.

2. Stock Grant Awards and Award Cycles

The Committee shall, from time to time, in its sole discretion, establish such grant cycles (the “Grant Cycles”) for the Program as it deems appropriate. In connection with each such Grant Cycle, the Committee shall designate those employee groups eligible to receive Long Term Stock Grants with respect to such Grant Cycle and the number of target shares awarded to each such Participant (“Target Shares”).

 


3. Earning Awards

Subject to Section 3(d) below, the extent to which Grants under the Long Term Stock Grant Program are earned is determined pursuant to the two performance criteria described in Sections 3(a) and (b), both based on total shareholder return (“TSR”) of the Common Stock, as determined in accordance with Section 3(c):

(a) Wrigley TSR. With respect to each Grant Cycle, the Committee shall prescribe a Measurement Period, which shall consist of all or any portion of the Grant Cycle. If the TSR of the Company’s Common Stock for the Measurement Period prescribed for a particular Grant Cycle is less than or equal to zero, all Long Term Stock Grants with respect to such Grant Cycle shall be forfeited and be of no force or effect.

(b) TSR Peer Group Ranking. Subject to Section 3(a), the portion of each Long Term Stock Grant that is earned during a Grant Cycle shall be determined by multiplying (i) the number of the Participant’s Target Shares granted with respect to such Grant Cycle by (ii) a percentage, not to exceed 200%, set forth in a schedule established by the Committee for such Grant Cycle and based on the percentile ranking of the TSR of the Common Stock during such Grant Cycle when compared to the TSR during such Grant Cycle of the common stock of the corporations included in a comparative group designated by the Committee (the “Comparative Group”); provided however, that if the TSR of the Common Stock ranks below the 40th percentile among the corporations in the Comparative Group, then all Long Term Stock Grants with respect to such Grant Cycle shall be forfeited and be of no force or effect.

(c) Determination of TSR. The TSR of the Common Stock and the TSR of the stock of each corporation included in the Comparative Group shall be equal to the appreciation of such stock plus reinvested dividends during the applicable Measurement Period. For purposes of determining the amount of a stock’s appreciation, the initial value of such stock shall be equal to the average daily closing price of such stock on the principal exchange on which such stock is traded during the 30-day period immediately preceding the first day of the Measurement Period, and the final value shall be equal to the average daily closing price of such stock on such exchange during the 30-day period immediately preceding the last day of such Measurement Period.

(d) Committee Approval. Notwithstanding any other provision of the Program to the contrary, if the Committee, in its sole discretion, determines that it is appropriate to do so, the Committee may cancel all or any portion of any Grant made hereunder, at any time until the expiration of 90 days after the end of the Grant Cycle to which such Grant relates, unless the Committee elects to shorten such period.

4. Award of Stock Grants Earned

(a) Issuance of Shares. Within the 2 1/2 month period following the end of each Grant Cycle, the Committee shall determine the number of shares that have been earned by each Participant pursuant to Section 3 above and at that time, or such later time at which the vesting conditions, if any, pursuant to Section 4(c) have been satisfied by such Participant, such earned and vested shares that the Participant has not elected to defer pursuant to the Deferral

 

2


Program shall be issued to such Participant without further restriction; provided, however, that such shares shall not be transferred by such Participant during such period as may be needed to comply with minimum share ownership requirements as may be established by the Committee. A Participant shall have no rights to any shares of Common Stock or dividends thereon until such shares are earned pursuant to Section 3 above, vested in accordance with Section 4(c) and issued to such Participant by the Company.

(b) Termination of Employment During Grant Cycle. If a Participant terminates employment for reasons other than death, Disability, or Retirement prior to the end of a Grant Cycle, the Long Term Stock Grant awarded to that Participant with respect to such Grant Cycle shall be forfeited and be of no further force and effect and any deferral election under the Deferral Program to the extent it relates to such Grant Cycle shall have no force and effect. Participants who terminate employment for reasons of death, Disability or Retirement after commencement of a Grant Cycle shall be awarded a proportionate distribution of any shares otherwise earned with respect to such Grant Cycle based upon their length of service in the Grant Cycle.

(c) Commencement of Participation During Grant Cycle. Participants who commence participation after the beginning of a Grant Cycle shall be awarded a distribution of any shares otherwise earned with respect to such Grant Cycle. Any shares of Common Stock earned with respect to a Grant Cycle that began three or more years prior to a participant’s commencement of participation in the Program shall not be issued to the participant and shall be subject to forfeiture upon the participant’s termination of employment with the Company until the earliest to occur of (i) the participant’s continuous employment with the Company through the second anniversary of the last day of such Grant Cycle, (ii) the Participant’s death, Disability or Retirement, or (iii) the occurrence of a Change in Control (as defined in the MIP).

(d) Change in Control. Notwithstanding any other provision of this Section 4 to the contrary, in the event of a Change in Control after commencement of a Grant Cycle, Participants shall be awarded a proportionate distribution of any shares otherwise earned with respect to such Grant Cycle based upon their length of service in the Grant Cycle.

(e) Definitions. For purposes of the Program,

 

  (i) the term “Disability” shall have the meaning specified in any long-term disability plan or arrangement maintained by the Company or, if no such plan or arrangement is then in effect, as determined by the Committee;

 

  (ii) the term “Retirement” shall mean retirement from the employment of the Company on or after attaining 55 years of age and completing at least five years of employment with the Company; and

 

  (iii) references to employment with the Company shall include employment with any subsidiary of the Company.

 

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5. Deferral of Grants

Participants may elect to defer the receipt of any portion of their Long Term Stock Grants in accordance with the terms of the Deferral Program.

6. Settlement of Grants to Participants in China and Russia.

If a Participant is employed in the People’s Republic of China or Russia at the time such Participant’s Grant is settled, the Company may, in its sole discretion, settle such Grant either by issuing shares of Common Stock in accordance with Section 4 hereof, to the extent permitted by applicable law, or by a cash payment in an amount equal to the fair market value of such shares.

C. SECTION 162(m)

Notwithstanding any other provision of the Program to the contrary, and solely with respect to those Grants intended to comply with section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended, such Grants shall be granted and administered in accordance with the MIP. To this end: (1) each Grant Cycle shall be deemed to be a performance period, (2) Grants shall not exceed the limit established for long-term incentive awards pursuant to the MIP, (3) for each Grant Cycle, the Committee shall establish the applicable Performance Goals (as defined in the MIP) within the time required pursuant to Section 162(m), and (4) no Grant shall be awarded or credited, unless otherwise determined by the Committee, until achievement of the applicable Performance Goals have been certified by the Committee.

 

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WM. WRIGLEY JR. COMPANY

STOCK OPTION PROGRAM

(As Amended and Restated Effective January 1, 2008)

Incorporated into and adopted under the Wm. Wrigley Jr. Company

1997 Management Incentive Plan, 2007 Management Incentive Plan, and any

successor thereto

The purpose of these General Provisions (the "General Provisions") is to set forth certain provisions which shall be deemed a part of, and to govern, options to purchase shares of the Common Stock, without par value (the "Common Stock"), of Wm. Wrigley Jr. Company, a Delaware corporation (the "Company"), granted by the Company on or after March 4, 1997 under the provisions of the Wm. Wrigley Jr. Company 1997 Management Incentive Plan, as amended, the 2007 Management Incentive Plan, as amended, or any successor thereto (the "Plan"), unless otherwise provided in the Option Agreement (as hereinafter defined) evidencing any such option or options.

1. Form of Stock Option Grant. Each stock option ("Option") shall be in writing (an "Option Agreement") and shall specify (i) the name of the recipient of the Option (the "Optionee"), (ii) the number of shares of Common Stock subject to such Option, and (iii) the terms applicable to the exercise of such Option, including the exercise price, any restrictions applicable to such exercise and the expiration date (the "Expiration Date") for such exercise.

2. Time and Manner of Exercise.

2.1. Exercise of Option. (a) Except as otherwise provided herein, an Option shall become exercisable as in the Option Agreement.

(b) If an Optionee's employment by the Company terminates by reason of Retirement or Disability, then after the date of such Retirement or Disability, such Optionee's Option shall, notwithstanding Section 2.1 (a) hereof, continue to vest and become exercisable pursuant to the terms and conditions of the Option as set forth in the Option Agreement with respect to any Options remaining subject to such Option as of such date and may be exercised by such Optionee or his or her Legal Representative or Permitted Transferees, as the case may be, until the Expiration Date.

(c) If an Optionee's employment by the Company terminates by reason of the Optionee's death, then the Option may be exercised by such Optionee's Legal Representative or Permitted Transferees, as the case may be, until 11:59 p.m.


(Chicago time) on the first anniversary of the date of death.

(d) If an Optionee's employment is terminated by the Company with or without cause or by voluntary action of such Optionee (other than Retirement), such Optionee's Option shall expire on the effective date of such termination of employment and shall not thereafter be exercisable.

2.2. Method of Exercise. Subject to the limitations set forth in the Option Agreement and this Program, the Optionee may exercise an Option:

(a) by giving written notice to the Company or its designated representative specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) (1) in cash, (2) by delivery of previously owned whole shares of Common Stock (which such Optionee has held for at least six months prior to the delivery of such shares or which such Optionee purchased on the open market and for which such Optionee has good title, free and clear of all liens and encumbrances) having an aggregate Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to such Option by reason of such exercise, (3) in cash by a broker-dealer acceptable to the Company to whom such Optionee has submitted all irrevocable notice of exercise or (4) a combination of (l) and (2), and

(b) by executing such documents as the Company may reasonably request.

The Company shall have sole discretion to disapprove of an election pursuant to any of subclauses (2) through (4) of clause (a) of this Section 2.2. Any fraction of a share of Common Stock, which would be required to pay such purchase price, shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Common Stock shall be delivered until the full purchase price therefor has been paid.

2.3. Termination of Option. (a) In no event may an Option be exercised after it terminates as set forth in this Section 2.3. An Option shall terminate, to the extent not exercised pursuant to Section 2.2 or earlier terminated pursuant to Section 2.1, on the Expiration Date stated in the Option Agreement.

3. Additional Terms and Conditions of Options.

3.1 Limited Transferability of Options. Except as may otherwise be permitted by the Plan or authorized in accordance with the terms of the Plan, an Option may be transferred by the Optionee (1) by will, (2) the laws of descent and distribution, (3) pursuant to beneficiary designation procedures approved by the Company, or (4) pursuant to a distribution duly ordered by a court of competent

 

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jurisdiction in connection with a divorce or dissolution proceeding. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime such Optionee’s Option is exercisable only by the Optionee, his or her Legal Representative or proper transferee. Except to the extent permitted by the foregoing, an Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt so to sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of an Option, such Option and all rights thereunder shall immediately become null and void.

3.2. Withholding Taxes. (a) As a condition precedent to the delivery of shares of Common Stock to the Optionee upon exercise of an Option, the Optionee shall, upon request by the Company, pay to the Company or its designated representative in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of such Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee.

(b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.2(a), (2) delivery to the Company of previously owned whole shares of Common Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having an aggregate Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with such Optionee's Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to the Optionee upon exercise of such Option having an aggregate Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Company shall have sole discretion to disapprove of an election pursuant to any of clauses (2) through (5). Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Common Stock, which would be required to satisfy any such obligation, shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full.

 

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3.3. Adjustment. The number and class of securities subject to an Option and the purchase price per share shall be subject to adjustment as provided in Section 1.6 of the Plan. If any such adjustment would result in a fractional security being subject to such Option, the Company shall pay the Optionee, in connection with the first exercise of such Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price per share of such Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

3.4. Compliance with Applicable Law. Each Option is subject to the condition that if the listing, registration or qualification of the shares subject to such Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, such Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval.

3.5. Delivery of Certificates. Upon the exercise of an Option, in whole or in part, the Company shall credit to a book-entry or other electronic account maintained for the Optionee, or deliver or cause to be delivered one or more certificates representing, the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.2.

3.6. Rights as a Stockholder. An Optionee shall not be entitled to any privileges of ownership with respect to shares of Common Stock subject to an Option unless and until purchased and credited to an account maintained for such Optionee or delivered to such Optionee upon the exercise of such Option, in whole or in part, and such Optionee becomes a stockholder of record with respect to such shares; and such Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and credited or delivered.

3.7. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of an Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Common Stock, the full number of shares subject to such Option from time to time.

3.8. Agreement Subject to the Plan. Each Option Agreement, and the Option thereby granted, are subject to the provisions of the Plan, including, without

 

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limitation, Sections 1.11 and 11.3 of the Plan, and shall be interpreted in accordance therewith.

4. Change in Control. (a) Notwithstanding any provision in the Plan or any Option Agreement, in the event of a Change in Control, all outstanding Options shall immediately become exercisable in full.

(b) "Change in Control" shall have the meaning as set forth in Section 11.2 of the Plan.

5. Miscellaneous Provisions.

5.1. Meaning of Certain Terms. (a) As used herein, employment by the Company shall include employment by a corporation, which is a "subsidiary corporation" of the Company, as such term is defined in section 424 of the Code. References in these General Provisions to sections of the Code shall be deemed to refer to any successor section of the Code or any successor internal revenue law.

(b) As used herein, the terms defined elsewhere in these General Provisions shall have the respective specified meanings and the following terms shall have the following respective meanings:

"Committee" shall have the meaning specified in the Plan.

"Disability" shall have the meaning specified in any long-term disability plan or arrangement maintained by the Company or, if no such plan or arrangement is then in effect, as determined by the Committee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Fair Market Value" means the closing transaction price of a share of Common Stock, as reported on the New York Stock Exchange Composite Transactions on the date of exercise or, if there shall be no reported transaction for such date, on the next preceding date for which a transaction was reported.

"Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person.

"Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under the Plan or Section 3.1 of these General Provisions or (ii) designated pursuant to beneficiary designation procedures approved by the Company.

"Retirement" shall mean retirement from the employment of the Company (as defined in Section 5.1(a) hereof) on or after attaining 55 years of age and completing

 

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at least five years of employment with the Company.

5.2. Successors. These General Provisions shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of an Optionee, acquire any rights under such Optionee's Option Agreement in accordance with such Option Agreement, these General Provisions or the Plan.

5.3. Notices. All notices, requests or other communications provided for in an Option Agreement shall be made, if to the Company, to Wm. Wrigley Jr. Company, 410 North Michigan Avenue, Chicago, Illinois 60611, Attention: Secretary, and if to the Optionee under such Option Agreement, to the address for such Optionee set forth in the records of the Company. All notices, requests or other communications provided for in an Option Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile transmission with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if sent by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company.

5.4. Governing Law. Each Option Agreement (including these General Provisions) and all determinations made and actions taken pursuant thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.

 

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WM. WRIGLEY JR. COMPANY

EXECUTIVE INCENTIVE COMPENSATION PROGRAM

(As Amended and Restated Effective January 1, 2008)

Incorporated into and adopted under the Wm. Wrigley Jr. Company

1997 Management Incentive Plan, 2007 Management Incentive Plan, and any successor thereto

1. Purpose. This Executive Incentive Compensation Program (the “Program”) is established under the Wm. Wrigley Jr. Company 1997 Management Incentive Plan, 2007 Management Incentive Plan and any successor thereto (the “Management Incentive Plan”), for the purpose of providing incentives to key executives of the Wm. Wrigley Jr. Company (the “Company”) and its Associated Companies to enhance the efficiency and profitability of the Company and its Associated Companies by providing participating executives with an opportunity to earn financial rewards in the form of annual incentive payments if certain annual corporate, business unit and/or personal performance objectives are met.

These rewards are intended to:

 

  (i) promote initiative and creativity in the achievement of annual corporate and unit goals;

 

  (ii) encourage the attainment of high performance personal goals;

 

  (iii) foster effective teamwork; and

 

  (iv) assist the Company to attract and retain highly skilled managers and competitively reward them with variable performance-measured cash compensation, without inflating base salaries.

2. Definitions.

 

For purposes of the Program, certain terms used herein shall be defined as follows:

(a) Associated Company. A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Company.

(b) Base Salary. The annual base salary each participant actually earns during the Program Year, excluding, without limitation, incentives, bonuses, overtime pay, reimbursement of relocation and other expenses, auto allowances and employee and fringe benefits; provided, however, that the Base Salary of certain executives of non-U.S. Associated Companies may include additional forms of remuneration, including but not limited to a “13th month” pay.

 


(c) Board. The Board of Directors of the Company.

(d) Code. The Internal Revenue Code of 1986, as amended.

(e) Compensation Committee. The Compensation Committee of the Board.

(f) Executive. An executive of the Company or an Associated Company.

(g) Incentive Award. The incentive compensation award paid to an Executive under the Program.

(h) Participant. An Executive who is eligible for an Incentive Award under the Program.

(i) Program Year. The 12-month period beginning on January 1 of each year.

3. Eligibility. An Executive shall be eligible to participate in the Program for a Program Year only if he or she is employed by the Company or an Associated Company and is notified in writing by the Company or an Associated Company of such Executive’s participation. Those selected to participate will not take part in any similar incentive plan which their particular unit may provide for associates of the Company or an Associated Company.

4. Participation.

The Compensation Committee shall determine the positions and grade levels of the Executives, if any, that shall participate in the Program for a Program Year. The Compensation Committee shall make such determination prior to the beginning of the Program Year, or as soon as practicable thereafter, based upon the recommendations of the senior management of the Company. As soon as reasonably practicable after such determination is made, the Company shall notify Participants in writing of their selection for participation in the Program for such Program Year and of the manner in which their Incentive Awards may be earned.

The Chief Executive Officer (the “CEO”) and other designated officers of the Company shall have the discretion during any Program Year (i) to select additional eligible Executives for participation in the Program, as a result of promotions or otherwise, provided such Executives are employed in the positions and grade levels which the Compensation Committee has designated as eligible to participate in the Program for such Program Year, and (ii) to terminate the participation in the Program of any Executives who, as a result of demotions or otherwise, were previously selected as Participants. In any such case, Incentive Awards for any such Executives may be prorated, based on the portion of the Program Year during which the Executives were Participants. Unless otherwise determined by the CEO or such other designated officer of the Company, a Participant whose employment terminates for any reason prior to December 31 of the Program Year shall not be entitled to receive such Incentive Award; provided, however, that the following Participants shall share proportionately in Incentive Awards based on corporate, unit, and/or personal performance, as described in Section 5(b):

(i) Participants on an approved leave of absence as of December 31 of the

 

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Program Year;

(ii) Participants who retire during the Program Year, with retirement being defined as retirement from the employment of the Company on or after attaining 55 years of age and completing at least five years of employment with the Company or an Associated Company; and

(iii) Beneficiaries of the Company’s noncontributory Group Life Insurance Plan named by Participants who die during the Program Year.

An Executive shall not be entitled to participate in the Program for a Program Year solely because such Executive was selected to participate in the Program for any prior Program Year.

5. Incentive Awards.

(a) Target Award Opportunities.

Each Program Year, the Compensation Committee shall establish Target Award Opportunities (the “Target Award Opportunity”) which will apply to Participants for such Program Year, either individually or by position or grade level. The Target Award Opportunity shall be expressed as a percentage of the Participants’ Base Salary, and, when multiplied by each such Participant’s Base Salary, shall represent the amount of the Incentive Award that such Participant would be entitled to receive if the relevant Performance Objectives, as hereinafter defined, have been attained at designated target performance levels. The Compensation Committee shall have the discretion each Program Year to establish with respect to any Performance Objective a minimum performance level to be attained for such Program Year below which no Incentive Award would be payable hereunder. Achievement of minimum performance will result in a payment at 50% of the Target Award Opportunity. Higher awards up to a maximum of 200% of Target Award Opportunities are earned for truly outstanding and exceptional achievements above target performance levels.

(b) Performance Objectives.

The payment of Incentive Awards to Participants under the Program shall be determined by the extent to which certain performance objectives (the “Performance Objectives”) have been attained with respect to each Program Year. The Compensation Committee shall establish certain Performance Objectives for the Program Year and the manner in which Incentive Awards may be earned for such Program Year. Unless otherwise determined by the Compensation Committee, performance shall be measured on the basis of the following three (3) categories of Performance Objectives:

 

  (i) Corporate Performance Objectives;

 

  (ii) Business Unit Performance Objectives; and

 

  (iii) Personal Performance Objectives.

 

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The Compensation Committee shall specify the relative weight to be attributed to each such category with respect to each position or grade of Participants.

The Corporate Performance Objectives for each Program Year shall be established by the Compensation Committee, taking into account the recommendations of the CEO and, unless otherwise determined by the Compensation Committee with respect to any Program Year, shall consist of one or more of the performance goals set forth in Section 9.2 of the Management Incentive Plan, and shall include target, minimum, and outstanding levels of performance where appropriate. The Compensation Committee shall specify the relative weight to be attributed to each such Corporate Performance Objective in determining the combined achievement of Performance Objectives within the Corporate Performance Objective category.

The Business Unit Performance Objectives shall be established for each Program Year (i) by the Compensation Committee with respect to Incentive Awards granted to the CEO and other members of the Executive Leadership Team and (ii) by the CEO and other designated officers of the Company with respect to Incentive Awards granted to executives other than the CEO and members of the Executive Leadership Team. Such Business Unit Performance Objectives shall consist of one or more of the performance goals set forth in Section 9.2 of the Management Incentive Plan, and must include target, minimum, and outstanding levels of performance. The Compensation Committee or the CEO or other designated officers, as the case may be, shall specify the relative weight to be attributed to each such Business Unit Performance Objective in determining the combined achievement of Performance Objectives within the Business Unit Performance Objective category.

The Personal Performance Objectives shall be established for each Program Year (i) by the Compensation Committee with respect to Incentive Awards granted to the CEO and other members of the Executive Leadership Team and (ii) by the CEO and other designated officers of the Company with respect to Incentive Awards granted to executives other than the CEO and members of the Executive Leadership Team. The Compensation Committee or the CEO or other designated officers, as the case may be, shall specify the relative weight to be attributed to each such Personal Performance Objective in determining the combined achievement of Performance Objectives within the Personal Performance Objective category.

The amount of an Incentive Award shall be based on the extent to which the actual level of performance for each individual Performance Objective meets a specified target level of performance. The Compensation Committee or the CEO or other designated officers of the Company, as the case may be, shall establish a range of performance levels that will be considered in determining the extent to which the target level of performance is satisfied. Actual levels of performance that are less than 30% of the specified target level of performance within such range shall be deemed to have been satisfied at 0%, and actual levels of performance that are in excess of 200% of the specified target level of performance within such range shall be deemed to have satisfied at 200%. Subject to such limitations, the actual level of performance with respect to each individual Performance Objective within a Performance Objective category (Corporate, Business Unit or Personal), expressed as a percentage of the target level of performance, shall be multiplied by the weight attributed to such individual Performance Objective to determine the weighted level of performance for that individual Performance Objective (the “Weighted Level of Performance”). If the sum of the Weighted Levels of

 

4


Performance for a Performance Objective category is at least 50%, then such sum shall be multiplied by the weight attributed to such Performance Objective category to determine the weighted level of performance for that category (the “Weighted Category Level of Performance”). If the sum of the Weighted Levels of Performance for a Performance Objective category is less than 50%, then the Weighted Category Level of Performance for such category shall be 0%. The sum of the Weighted Category Levels of Performance shall be multiplied by a Participant’s Target Award Opportunity to determine the amount of the Incentive Award, expressed as a percentage of such Participant’s Base Salary.

(c) Evaluation of Performance. As soon as practicable following the end of each Program Year, the Compensation Committee, after taking into account evaluations and recommendations of the CEO and other designated officers of the Company, shall evaluate the extent to which the Corporate Performance Objectives have been met for the Program Year. The extent to which all Business Unit and Personal Performance Objectives have been satisfied for a Program Year shall be determined (i) by the Compensation Committee with respect to Incentive Awards payable to the CEO and other members of the Executive Leadership Team and (ii) by the CEO and other designated officers of the Company with respect to Incentive Awards payable to executives other than the CEO and members of the Executive Leadership Team. The Compensation Committee may, in its sole discretion, adjust such Performance Objectives on account of any extraordinary changes which occur during the Program Year, such as changes in accounting practices or the law.

(d) Payment of Incentive Awards. Incentive Awards shall be payable to Participants within the 2 1/2 month period following the Program Year for which payment is being made, except to the extent a Participant defers an Incentive Award to a later date pursuant to the terms of the Company’s Executive Compensation Deferral Program. Unless otherwise determined by the Compensation Committee, all Incentive Awards shall be paid in cash.

In all cases the Compensation Committee shall have the sole and absolute discretion to reduce the amount of any payment under any Incentive Award that would otherwise be made to any Participant or to decide that no payment shall be made. Except for Incentive Awards intended to constitute qualified performance-based compensation for purposes of section 162(m) of the Code, the Compensation Committee shall have the sole and absolute discretion to increase the amount of any payment under any Incentive Award that would otherwise be made to any Participant.

(e) Awards Subject to 162(m) of the Code. Notwithstanding any other provision of this Program, Incentive Awards granted to Executives who are, or are reasonably expected to be, Covered Employees, as defined in section 162(m) of the Code, shall be subject to the terms and limitations set forth in Article IX of the Management Incentive Plan and to such other restrictions as are deemed appropriate to comply with the exemption applicable to qualified performance-based compensation under section 162(m) of the Code.

6. Change In Employment Position.

Unless otherwise determined by the Compensation Committee, the Incentive Award for a Participant who changes his or her employment position within the Company during

 

5


a Program Year may be determined by prorating the Target Award Opportunity and/or the Incentive Award pertaining to each of the Participant’s positions on the basis of the portion of the Program Year spent in each position.

7. Administration.

The Program shall be administered by the Compensation Committee, which shall have full power and authority to interpret, construe and administer the Program in accordance with the provisions herein set forth. The Compensation Committee’s interpretation and construction hereof, and actions hereunder, or the amount or recipient of the payments to be made herefrom, shall be binding and conclusive on all persons for all purposes. The Compensation Committee may delegate to any corporation, committee or individual, regardless of whether the individual is an associate of the Company or an Associated Company, any administrative duties necessary to implement the Program. The expenses of administering the Program shall be paid by the Company and each Associated Company and shall not be charged against the Program.

8. Amendment or Termination. The Program may be amended or terminated at any time and for any reason by the Compensation Committee. The Compensation Committee may, in its sole discretion, reduce or eliminate an Incentive Award to any Participant at any time and for any reason. The Program is specifically designed to guide the Company in granting Incentive Awards and shall not create any contractual right of any associate to any Incentive Award prior to the payment of such award.

9. Nontransferability. No Incentive Award payable hereunder, nor any right to receive any future Incentive Award hereunder, may be assigned alienated, sold, transferred, anticipated, pledged, encumbered, or subjected to any charge or legal process, and if any such attempt is made, or a person eligible for any Incentive Award hereunder becomes bankrupt, the Incentive Award under the Program which would otherwise be payable with respect to such person may be terminated by the Compensation Committee which, in its sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such person or make any other disposition of such award that it deems appropriate.

10. Income Tax Withholding/Rights of Offset. The Company shall have the right to deduct and withhold from all Incentive Awards all federal, state and local taxes as may be required by law. In addition to the foregoing, the Company shall have the right to set off against the amount of any Incentive Award which would otherwise be payable hereunder, the amount of any debt, judgment, claim, expense or other obligation owed at such time by the Participant to the Company or any Associated Company.

11. Claim To Incentive Awards and Employment Rights. Nothing in this Program shall require the Company or any Associated Company to segregate or set aside any funds or other property for purposes of paying all or any portion of an Incentive Award hereunder. No Participant shall have any right, title or interest in or to any Incentive Award hereunder prior to the actual payment thereof, nor to any property of the Company or any Associated Company. Neither the adoption of the Program nor the continued operation thereof shall confer upon any associate any right to continue in the employ of the Company or any

 

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Associated Company or shall in any way affect the right and power of the Company or any Associated Company to dismiss or otherwise terminate the employment of any associate at any time for any reason, with or without cause.

12. Construction. Titles and headings of sections in the Program are for convenience of reference only, and in the event of any conflict, the text of the Program, rather than such titles or headings, shall control.

13. Governing Law. All questions pertaining to the construction, validity and effect of the Program shall be determined in accordance with the laws of the State of Delaware.

 

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WM. WRIGLEY JR. COMPANY

2007 Annual Report

delivering aspirational growth


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In 2007 we reached a historic milestone –

exceeding $5 billion in sales


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…by delivering on the promise and potential of

our 5 greatest strengths.

 


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Financial Highlights

2007 2006

Net Earnings $ 632,005 $ 529,377

Diluted EPS $ 2.28 $ 1.90

Sales $ 5,389,100 $ 4,683,437

Dividends Paid $ 309,838 $ 276,021

Additions to Property, Plant and Equipment $ 251,429 $ 327,758

Stockholders’ Equity $ 2,817,480 $ 2,388,092

Return on Average Equity 24.3% 23.0%

Stockholders of Record 41,020 40,986

Dilutive Shares Outstanding 277,413 278,399

In thousands of dollars and shares, except per share amounts and stockholders of record. For additional historical financial data see page 44.

1 This discussion of net earnings is a “non-GAAP” financial measure. The Company believes this measure provides its shareholders with additional information about its underlying results and trends, as well as insights into management’s view of operating results. Refer to the Management’s Discussion & Analysis (page 33) for further discussion of operating results in accordance with U.S. GAAP. The following table reconciles the net earnings in accordance with U.S. GAAP to non-GAAP:

2007 2006

In Thousands Per Share In Thousands Per Share

Net Earnings, as reported under

U.S. GAAP $ 632,005 $ 2.28 $ 529,377 $ 1.90

Restructuring expense, net of tax (A) 8,857 0.03 31,011 0.11

Gain on sale of assets, net of tax (B)(19,327)(0.07) — —

Non-GAAP earnings, excluding restructuring

expense and gain on sale of assets $ 621,535 $ 2.24 $ 560,388 $ 2.01

(A) Management has excluded restructuring expense as it is viewed as nonrecurring costs incurred to improve production operations.

(B) Management has excluded the gain on the sale of certain assets as it is viewed as nonrecurring income.

Delivering Aspirational Growth

 


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To our Shareholders and the Worldwide Wrigley Team:

In 2007, the Wrigley Company achieved an ambitious aspiration…we surpassed $5 billion in annual sales, delivering $5.4 billion in sales for the fiscal year. While this achievement was an important milestone for the company and our associates, the fact that we more than doubled our sales since 2000 is just one indicator of our progress. Over that same time period, we strategically expanded the scope of our global product portfolio and production capabilities, fostered a more dynamic, innovative culture and developed a talented, high-performance internal team that today numbers 16,400 associates worldwide. Since 2000, we also increased our net income from $329 million to $632 million and, excluding one-time items, consistently delivered 9 –11 percent annual growth in earnings per share.1 With this overall global performance, we continued to create strong shareholder value.

Delivering this aspirational growth is a major accomplishment, and I am very proud of and inspired by the entire Wrigley team who made this happen. But even more inspiring is the team’s focus on “what’s next?” While we recognize and celebrate our accomplishments, this is an organization that is most excited by the possibilities of the future. Our future has never been brighter.

We are in a remarkable category. There is rising demand, heightened consumer interest in innovation, healthy margins and long-term growth potential. As a company, we contribute to this growth by driving innovation in flavors, formats, packaging and benefits. We use only high-quality ingredients and pay attention to detail in every step of the production process because we know quality matters and wins in the marketplace. We have an industry-leading team full of passion and character that has delivered consistent revenue and earnings growth, robust cash flows and long-term value creation.

These dynamics – a growing category and a company with the capabilities and the culture to capture that growth – are a powerful combination.

The Confectionery Category – A World of Opportunity

First, some observations about the global confectionery category. Based on global reports,* confectionery sales are showing an 8 percent growth rate and have reached almost $137 billion at retail. Looking forward, confectionery sales have one of the highest projected growth rates of all food categories. And while all confectionery subcategories are projected to continue growing over the next five years, the fastest-growing of all remains gum. Every major region of the world is contributing to that growth, particularly the developing geographies of Asia, Eastern Europe and Latin America.

1

See Financial Highlights, page 2.

*Data from Euromonitor International as of 2006, the last full year for which statistics are available at time of printing.

Wm. Wrigley Jr. Company 2007 Annual Report 3

William Wrigley, Jr.

Executive Chairman and Chairman of the Board

 


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“While we are the world’s largest gum company, we are also the fourth-largest confectionery company in the world.”

In less-developed countries, which collectively account for three-quarters of the world’s population, income is on the rise in many areas. This translates to significant growth potential in demand for confections in these marketplaces, including Asia (where Chinese consumers alone spent more than $6 billion on confectionery in 2006) and Eastern Europe (where local consumers spent $12 billion) – geographies where Wrigley already enjoys a substantial presence.

Growth also continues in more developed countries. In the U.S., consumers spent more than $28 billion on confections in 2006, nearly a 5 percent increase over the previous year and a sum that represents one-fifth of all global spending on confections. Even with such high levels of consumption, there remains untapped potential to drive demand through innovation, dynamic marketing and retail execution.

The Wrigley Company – Poised for Continued Growth

So, how is the Wrigley Company performing in this category? Wrigley has the scale of a global player, combined with the knowledge, expertise and the core competencies to compete and win in the diverse geographies of the world. Of the seven top countries in terms of confectionery sales at retail in 2007 – the United States, Great Britain, Germany, Japan, Russia, France and China – Wrigley is a top confectionery player in six of those countries and the industry leader in gum in five.

Delivering Aspirational Growth

In addition to being well-positioned geographically, Wrigley also is competitively advantaged with a diverse portfolio of quality confectionery brands. As previously noted, gum –where the Wrigley name has a heritage spanning more than a century – is the fastest growing confectionery sector. Over the past five years, the gum category has grown an average of 4 percent annually in volume and 8 percent in sales – and we have performed even better than that. With our growing stable of sugarfree gums and our expansive scientific c expertise and consistent investment in research and development, we believe Wrigley is well prepared to take advantage of continued strong growth in benefit-enhanced and premium-priced gum products.

While we are the world’s largest gum company, we also are the fourth-largest confectionery company in the world. We are a leader in mints and hard candies and we are building new capabilities in chocolate and other confectionery. Our diverse portfolio gives us many tools with which to compete aggressively in every geography and leverage our presence wherever we compete.

So what does that mean in terms of category leadership and delivering stockholder value? The strength of a company is not just its core capabilities, its assets and its profit potential –it is in the team that makes things happen, the culture that enables growth and the character of that company that sets

 


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NET SALES

billions of dollars

EARNINGS PER SHARE

dollars

OPERATING CASH FLOW

millions of dollars

2.28

5.4

1,004

4.7

1.90

1.83

4.2

1.75

1.58

725 740 722

3.6

1.42

645

3.1

1.29

1.16

2.7

2.4

2.1

390 374

00

01

02

03

04

05

06

07

 

00

01 02 03 04 05 06 07

 

05

06

 

00

01 02 03 04 05 06 07

05 06 it apart and creates competitive advantages. These are the drivers of long-term growth. In my mind, there are several key characteristics of the Wrigley Company that differentiate us and make us more competitive:

• We are adaptable. Every marketplace is unique, so we combine our global strength with a strategic, customized approach to individual geographies, and then we translate those learnings into effective, competitive “go-to-market” tactics.

• We are intuitive about the needs of our consumers and our retail customers. We lead trends and deliver the innovation and category management that helps us win with our stakeholders.

• Our resilience helps us weather periodic challenges and overcome obstacles – whether it is improving the way we work internally, the way we address opportunity within a geography or our competitive action plans.

• Some might describe us as quiet or understated, but I believe a more accurate portrayal is focused and intentional.

• We don’t just survive, we thrive. We are agile enough to anticipate challenges and opportunities in our competitive field, and we are patient in the execution of business strategies that will deliver growth for future generations.

And while we continue to evolve as an organization and achieve new levels of performance, these inherent characteristics, as well as our commitment to the core Wrigley values that bind our team, will not change. Doing the right things, and doing things right, are part of our culture – they represent the soul of our company – and they help set Wrigley apart from the rest of the field.

We hold ourselves accountable to the highest standards, whether it is ensuring quality in our manufacturing, providing our associates with industry-leading training and coaching programs, proactively looking for ways to operate as an environmentally friendly business or contributing to our communities.

In fact, as a thanks to our consumers and our communities for supporting our growth and $5 billion sales achievement, the Wrigley Foundation will be making a special $5 million charitable donation focused on the most important issues that face our world today – the development of our youth and the conservation of our planet. We are partnering with two outstanding organizations, International Youth Foundation and Conservation International, to leverage these financial resources and make a difference in our world.

Our Wrigley culture and values, combined with our longstanding record of delivering on our long-term financial

Wm. Wrigley Jr. Company 2007 Annual Report 5

 


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“The best is yet to come for this company. And while we will have new challenges in the coming years – we are ready to take them on…”

objectives, are what create the most value for you. In 2007 that was reflected by delivering more than 11 percent in earnings growth, increasing dividends, reinvesting in our business and our brands and, of course, enjoying the increased value of our stock.1

Wrigley associates made that possible and remain the most important competitive advantage of our company. I am extremely pleased with the strong partnership between Bill Perez and me and the continued outstanding guidance and support from our Executive Leadership Team.

So, in closing, I want to thank our team of dedicated, talented people around the world for their tireless work on behalf of our organization, our Board of Directors for their strong

Growth and thorough governance of the company and you, our shareholders, for your continued support.

The best is yet to come for this company. And while we will have new challenges in the coming years – we are ready to take them on and we are confident in our ability to rise to new heights as a confectionery leader.

Executive Chairman and Chairman of the Board

See Financial Highlights, page 2.

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Delivering Aspirational


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To our Shareholders and the Worldwide Wrigley Team:

I’m very proud of what the people of Wrigley accomplished in 2007. They not only broke through the $5 billion sales level, but also extended the Wrigley tradition of building the business for the long term while achieving excellent annual results. It was my first full year at Wrigley and I was inspired by the determination our people showed.

Financial Performance

That determination helped drive every dimension of our business. Our 2007 results reflect a company with great momentum.

• Top-line growth continued to be exceptionally strong at 15 percent; even excluding the positive benefit of currency, worldwide sales grew at a double-digit pace.

• Much of the currency tailwind was reinvested into brand building. Total brand support increased over 20 percent – the equivalent of 80 basis points as a percent of sales.

• A year ago, we told you that we had reached an inflection point in terms of declining gross margins; this has been realized in 2007, with gross margins improving slightly versus 2006.

• We began to see the fruits of our operating expense control efforts during the second half of the year, and in the fourth quarter, operating expenses as a percent of sales were a full 60 basis points lower than the same period a year ago.

• All of this translated into an 11 percent increase in earnings per share – excluding one-time items, this marks the eighth consecutive year of delivering against our stated financial objective of 9–11 percent earnings per share growth over the long term.1

• Cash generated from operations increased almost 40 percent, reflecting our strong earnings growth, coupled with working capital improvements. This enabled us to return over $500 million to shareholders in dividends and share repurchases, while funding an acquisition and keeping our debt essentially flat at modest levels.

Managing our Business

As Bill Wrigley articulates in his letter, we have unique characteristics that truly differentiate us from other companies, and we see immense opportunity to achieve the goals that we set for ourselves and deliver the long-term results that our Wrigley shareholders have come to expect.

We have a clear strategic vision for our company as a diversified leader in the confectionery industry, and operate with a desire to take big, tangible steps forward each day. While we will never compromise the long-term potential of our company, you can rest assured that we feel a sense of urgency to capitalize on the opportunities immediately before us.

See Financial Highlights, page 2.

Wm. Wrigley Jr. Company 2007 Annual Report 7

William D. Perez

President and

Chief Executive Officer

 


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That means we must continue to make major improvements in the fundamentals. In particular, we placed a strong priority on managing our supply chain dynamics as effectively as possible, and we made major strides in 2007, restructuring not only for better efficiency, but also to improve our ability to service retailers. As our global business continues to expand, we will increasingly capitalize on our scale advantages to manage our costs and support our profitable business.

But we know we cannot save our way to the kind of long-term returns we are determined to generate – the key to driving top-line growth is building great brands with strong consumer demand in the marketplace. To do that, we must continue to build our existing major brands while tapping into new opportunities with innovation.

To make sure we are making the most of our brand investments, we have begun to substantially enhance our marketing effectiveness. In addition to a $150 million increase in investment, we also increased the sophistication of our marketing mix – leveraging these resources more effectively through the new media and emerging marketing vehicles that are most relevant to today’s consumers. To support this consumer connection and increase our efficiency in allocating resources, we realigned our internal marketing organization to move decisions closer to the local marketplace. We also capitalized on our scale by consolidating our agency relationships.

Delivering Aspirational Growth

Innovation

A few years ago, we made a strong commitment to innovation with our investment in our Global Innovation Center. In 2007, that investment continued to deliver returns with several significant advancements.

• The launch of our new “5” brand in the U.S. showed that we can execute with both excellence and speed. The brand is off to a great start, exceeding our original share and sales forecasts. Only six months after its national introduction, 5’s dollar velocity has made its Rain and Cobalt flavors the #1 and #3 ranked gum SKU in Food, Drug, Mass Merchandiser and Convenience store channels. Dramatic consumer response to the brand has built a more than 5.7 percent dollar share, as reported by AC Nielsen.

• In addition to new brands, Wrigley’s innovation in packaging is increasing consumption of our brands. In Germany, the launch of a premium bottle package has helped fuel sales. In Poland, a new peg bag pouch has provided added value to consumers and is driving sales increases in this very strong, and maturing, Wrigley geography.

• Premier endorsements from trusted sources are building brand equity and making our brands even more attractive with consumers. Wrigley’s Extra, Eclipse and Orbit brands in the U.S. became the first chewing gum brands ever to earn the Seal of Acceptance from the American Dental Association. The seal, appearing on pack and in advertising, is highly influential in driving purchase intent among consumers.

Mary Kay Haben

Group Vice President and Managing Director, North America

Igor Saveliev

Group Vice President and Managing Director, East and South Europe

Michael Wong

Group Vice President and Managing Director, Asia/Pacific

 


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• The Wrigley Science Institute has funded significant independent research to explore new benefits of chewing gum – including weight management, increased alertness and concentration and stress reduction. With this research, we are giving consumers new reasons to chew Wrigley gum and building category consumption. In fact, on-air trainers on NBC’s “The Biggest Loser” are recommending Wrigley’s Extra as a great calorie management tool to participating contestants and the more than 8 million program viewers that tune in each week.

Overall, we continue to accelerate the pursuit of new, proprietary avenues of innovation in terms of ingredients, packaging, technologies and benefits.

Geographic Portfolio

We operate as a truly global company, doing business in more than 180 nations around the world. As a reflection of the substantial scale of our global operations, we added the heads of our geographic regions to our Executive Leadership Team, to better capitalize on the unique insights and opportunities offered by Wrigley’s broad geographic base, as well as to further strengthen the connection between our overall strategy and its execution in the local marketplace.

As you know, our strategy calls for us to excel in the geographies that will be essential to our long-term performance – China, Russia, India and the United States – which account for 44 percent of the world’s population and an increasing percentage of its economic activity. Collectively, they offer a healthy balance of immediate growth opportunities and uniquely promising long-term development. We made major gains in China, Russia and India this year, and we are taking decisive steps we believe will put our U.S. operations on a trajectory that meets our expectations.

• China – This important marketplace is the fourth-largest economy in the world and Wrigley is China’s largest confectionery company. With our early commitment to this geography, we have built greater retail distribution than any other consumer product company – as reported by ACNielsen. The leading gum brand in China, Wrigley’s Doublemint, continues to resonate with consumers and expand consumption with new flavors and packaging innovations. Our revenue in China continued to grow dramatically and by expanding our production plant in Shanghai we further strengthened the economics of our business there.

• Russia – Our sales grew in double digits in Russia. Early in 2007, we fortified this existing business and extended into chocolate for the first time, with the acquisition of A. Korkunov, one of Russia’s premier chocolate makers. The acquisition exceeded our performance expectations and delivered significant incremental growth. Wrigley Russia’s full range of confectionery offerings – including gum, hard candy, gummies, mints and chocolate – has established a strong foundation for future business expansion in this diverse and promising geography.

Wm. Wrigley Jr. Company 2007 Annual Report 9

Surinder Kumar

Senior Vice President and Chief Innovation Officer

Dushan Petrovich

Senior Vice President and Chief Administrative Officer

Martin Schlatter

Vice President and Chief Marketing Officer

 


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• India – Net sales grew well in India, where our business is still very much in the early phases of development. Our Boomer brand is the largest bubble gum in the country and Orbit is leading the development of a dental care gum segment in India. We also took important steps in strengthening our foundation there, improving our production economics by expanding our facility in Baddi.

• United States – While we are pleased with the enthusiastic reception for “5” and the successful execution of a price increase, we are dissatisfied with our performance in the U.S. However, we understand the key factors driving the U.S. and we are executing a clear plan that we believe will reassert our business competitively.

In other important geographies, we drove strong results:

• In the United Kingdom, as we anticipated, one of our major confectionery competitors made a substantial effort to enter the gum segment. The UK Wrigley team increased revenues through innovation and brand building in the marketplace and blunted competitive share progress.

• In Germany and Poland net sales grew in double digits, an impressive acceleration in two important European geographies. Increased distribution, consumption-driving packaging innovation and solid performance from our existing brands delivered the gains.

Delivering Aspirational Growth

• In Australia the retail chewing gum category has been ignited – more than doubling in growth versus the prior year – through Wrigley’s innovation and excellence in retail execution. Wrigley has also taken the lead in the mint category. Eclipse brand mints grew at a phenomenal double-digit rate in 2007.

Overall, the breadth and diversity of our geographic portfolio provides us with enviable scale and generates strong cash flow today, which in turn allows us to make investments in marketplaces with substantial long-term growth potential.

What Can You Expect in 2008?

• First of all, you can expect intensified focus on our share. While we have been pleased with our rate of sales growth, we feel we can accelerate our growth relative to the marketplace in the future.

• We will continue to emphasize retail execution, particularly at the check out. Our sales organizations will be tailored to each geography and we will invest in areas including category management, consumer insights and effective retail coverage.

• Our newly realigned marketing organization will bring us closer to the consumer and our consumer insights, when leveraged with R&D capabilities will lead to more meaningful innovation.

Howard Malovany

Senior Vice President,

Secretary and General Counsel

Reuben Gamoran

Senior Vice President and Chief Financial Officer

Peter Hempstead

Senior Vice President, Worldwide Strategy and New Business

 


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• We will manage our P&L carefully; emphasis will continue to shift from volume to value. We will proactively manage gross margins through procurement efforts, cost reduction and judicious price increases, and we will tightly control non-sales-related operating expenses. We will make sure incremental funds find their way to the bottom line or additional brand building funding, consistent with our long-term strategy.

• We will take advantage of our unique strengths in Russia and China to continue to drive growth in these geographies that are so important to our future.

• We will continue to make improvements in our supply chain focusing on our global manufacturing operating efficiencies and superior customer service.

Most importantly, our year’s success will not constrain our belief in the opportunity and necessity for continuous improvement.

Wrigley and Winning

One of the reasons I joined Wrigley was because I saw that a commitment to winning was deeply ingrained in the culture.

That intense commitment was clear in my earliest conversations with Bill Wrigley and it has become even clearer to me as I have engaged with our local teams around the world.

Over the past seven years, our team has focused on delivering an ambitious aspiration. In December, we surpassed that milestone because we demonstrated a very real commitment to stepping up our game each and every year, a commitment that we intend to continue to fulfill going forward as we set our sights on even more ambitious levels of achievement.

As we lean into 2008, I thank my Wrigley colleagues for their spirited commitment, and I thank our shareholders for their ongoing trust. We have a truly unique opportunity before us, and we are determined to turn that opportunity into reality.

President and Chief Executive Officer

Wm. Wrigley Jr. Company 2007 Annual Report 11

 


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Bill Wrigley, Jr. and Bill Perez Respond to Commonly Asked Questions:

Q: You said that this year would end the decline in your gross margin, and you did record a slight improvement. What are the prospects going forward?

A: Through a combination of productivity improvements, pricing moves and tight cost controls, we were able to achieve a small increase in our consolidated gross margin in 2007, despite rising inflation and higher input and new product costs.

Wrigley has one of the strongest gross margins in the category, and it is our intention to continue as a leader in this area over time. That being said, inflationary pressures remain, including rising costs for energy and various commodities, as well as new product innovation. We will manage against those pressures in 2008 with ongoing initiatives in terms of manufacturing improvements, procurement efficiencies and judicious price increases.

We will also be keeping a tight reign on non-sales-related operating expenses, while continuing to expand our global portfolio with value-added, premium-priced product offerings.

Q: What has been the impact of the new competitive entry into the gum sector in the United Kingdom? Are you satisfied with how things are playing out in the marketplace?

A: We have been expecting this particular entry into the UK gum sector for a number of years. All things

Delivering Aspirational Growth considered – including the increase in our sales and growth in overall category consumption – we are pleased with how we have managed against competition.

Given that the new competitor is the biggest UK confectioner with the largest sales force in the marketplace, we had anticipated even more substantial initial share gains. What is most gratifying is the work of the UK Wrigley team that drove innovation and brand building in the category in a way that not only nearly halved the initial share gain of the new competitor, but increased our sales at their highest rate in three years.

Clearly, the strong UK gum category growth in 2007, in response to increased innovation and marketing spending, shows there is room for per-capita consumption increases, even in a well-developed marketplace. And while the UK is not a “zero sum game” by any stretch of the imagination, we will do our best to capture the lion’s share of incremental consumption and sales going forward.

Q: This is the second year of share declines for Wrigley in the United States gum segment. What are your plans to improve the current trends?

A: We are not happy with our modest share declines in the U.S. over the past two years – our first declines in more than a decade – and we have plans in place to accelerate our growth relative to the marketplace in the future.

 


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We are very pleased with the success of the “5” brand in the eight months since its launch, and we are looking to excite U.S. consumers with equally attractive new product launches in 2008, as well as various product and packaging improvements and motivating and winning advertising.

In 2008, you will see a real focus on share performance in the marketplace, and we will continue to emphasize retail execution, particularly at the check-out. Our ongoing investments in category management, consumer insights and effective retail coverage will also help us to win in the marketplace, both in the gum segment and in overall confectionery.

Q: In general, how has expansion into other areas of confectionery, beyond gum, benefited Wrigley’s business?

A: Our expansion into other areas of confectionery has benefited Wrigley’s business in a number of ways. First and foremost, it has opened up to us vast new areas of business opportunity. Our entry into non-chocolate confection has more than tripled the size of the marketplace in which we compete, and the overall chocolate marketplace is even larger.

From a distribution perspective, confectionery has increased our presence throughout the store – both at the checkout and in the aisle. Our confectionery brands and product offerings have given us stronger relationships with our retail partners around the world, including increased opportunities for category captaincy. They have also allowed us to better leverage our tremendous sales force infrastructures, especially in developing geographies such as Russia and China, as well as our marketing media spends.

Most importantly, entering confectionery has allowed us to reach a wider range of consumers, which has given us new insights into consumer needs and purchase intentions. Those insights, in combination with additions to our brand portfolio and confectionery skill set, have created all kinds of new product possibilities. As a result, we have been able to build an even stronger product pipeline, with innovative forms, flavors, and packaging options across all types of confectionery.

Expanding into non-gum confectionery, therefore, has made us a larger, more competitive company, with a stronger revenue stream, more funds available for investment in innovation and marketing support, and more diversified long-term growth prospects.

Q: China seems to be a continued engine of growth for Wrigley. How is the Company going to maintain its competitive advantage there and continue the strong growth?

A: China has been an important part of our overall growth, but it is only one of many international success stories for Wrigley. In fact, China has been growing on average at a double-digit rate – and profitable each year – since we started manufacturing locally back in 1993. The things that have produced such an excellent track record for Wrigley in China up to this point are the same things that offer encouragement and promise for the future.

First of all, we have the scale – in terms of people, production, distribution and brand awareness – as well as the profitability and cash flow necessary to continue investing in all aspects of our business in China.

We are also not resting on past success, but are keenly focused on gleaning additional marketplace insights to drive innovation that is both relevant and motivating to consumers across China.

Even with the unmatched sales infrastructure and reach of the Wrigley Company in China – with nearly 80 percent retail penetration touching more than 2.2 million points of distribution – there are still opportunities for improvements. Every day, we are reaching further into the marketplace and adding to the variety and depth of our product offerings. We look for that pattern to continue, as per capita and disposable income continue to rise in China and the modern trade continues to expand deeper into the interior of the country.

Finally, even given the strong growth of per capita consumption of gum and confectionery in China over the past 15 years, it still remains toward the lower end of the global scale. With our ability to invest in consumer research, product innovation, manufacturing capacity, sales infrastructure and advertising media, we see ample room for growth from the current per-capita consumption level in China of about 22 servings of gum per year.

Wm. Wrigley Jr. Company 2007 Annual Report 13

 


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Wrigley sells its products in more than 180 countries around the world and operates 22 manufacturing facilities in 14 countries.

The global confectionery business is healthy and growing at a dynamic pace. Wrigley sells its products in more than 180 countries around the world and operates 22 manufacturing facilities in 14 countries. Our remarkable geographic footprint is supported by a robust supply chain and selling infrastructure that ensures excellent worldwide distribution. Wrigley’s most recently expanded facility in Shanghai provides its first Asian source for gum base – the key ingredient in gum that gives it its “chew” – and will help support the Company’s growth in Asia.

In addition to scale, Wrigley has the local expertise and insights needed to be successful across diverse geographies, distribution networks and cultures. Consistent investment in selling infrastructure has put the “feet on the street” that Wrigley needs to make sure our brands are represented at every possible point of retail sale, from the largest, most sophisticated urban retailer to the most remote corner store.

Just as our business is global, our Executive Leadership Team reflects the geographic diversity of our business. In 2007, we added regional representation at the executive level, ensuring that decision making at the highest level reflects the opportunities and challenges presented across our geographies.

While performance across all Wrigley marketplaces is important, Wrigley recognizes the importance of winning in China, India, Russia and the U.S. and is committed to executing local strategies that will help us win in these countries.

In China, one of the world’s fastest-developing marketplaces, Wrigley is the country’s #1 confectionery company and there is substantial upside in building upon the relatively low per-capita consumption of confections. India is a complex geography where Wrigley has a smaller, but leading presence. The population of India and its increasing economic development present significant opportunities for Wrigley, but there is still work to do addressing the challenges of the marketplace.

In Russia, Wrigley has its most diverse confectionery offerings, including A. Korkunov chocolate. With this acquisition, Wrigley is now the #1 player in the Russian confectionery business and well positioned to take advantage of growth opportunities. The U.S. is Wrigley’s largest geography, and while it is a more developed confectionery marketplace, category sales are growing faster than most other consumer packaged goods categories.

Delivering Aspirational Growth

 


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OUR FIVE GREATEST STRENGTHS

#1 geographic strength – local expertise

Wrigley has greater distribution in China than any other consumer packaged goods company – covering

2.2 million

points of distribution

of sales in Russia are made through smaller, independent stores and kiosks versus larger, organized retail trade. In the U.S., only 10 percent of retail sales are through these smaller types of outlets.

75% A major factor of Wrigley’s success around the world is the ability to build distribution across very different retail environments.*

*Percentages of sales in Russia and the U.S. are approximate figures.

SALES BY GEOGRAPHIC REGION

49% 33% 14% 4%

• EMEAI (Europe, Middle East, Africa, India – principally Europe)

• North America

• Asia%

• Other Geographic

Regions (Includes Latin

America and Pacifi c)

Wm. Wrigley Jr. Company 2007 Annual Report 17

 


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OUR FIVE GREATEST STRENGTHS

#2 at excellence at retail

At the heart of Wrigley’s success in building partnerships with retailers is our category expertise and a clear understanding that you cannot win across diverse retail channels by taking a cookie-cutter approach. Wrigley’s category management experts base their customer recommendations on shopper analysis that is customized by channel. Wrigley partners with retailers to identify how best to meet the needs of shoppers and ensure product availability, placement in store, and arrangement on shelf will drive consumer takeaway and deliver profitability to the retailer.

Whether it is a convenience, grocery or drug store – a huge mass merchandiser or wholesale club – or one of the small shops and kiosks, Wrigley’s product placement is designed for maximum impact and movement. sixteen seconds –

THE AMOUNT OF TIME CONSUMERS SPEND SHOPPING FOR CONFECTIONS AT THE FRONT END

Wrigley has significant expertise in shopper behavior at the front end of the store at the check out. This is one of the most profitable areas of any retail operation. Well-placed product at the front end can increase purchases per trip and bring new buyers to the confectionery category. In 2007, Wrigley implemented a new “over the belt” strategy for its retail customers. In testing, use of Wrigley’s plan for product display and distribution drove a 9 percent increase in total front-end sales and profits for participating grocery retailers without taking up more space.

49%

of the global “snacking universe” is confections.

The snacking universe includes confections, salty and sweet snacks, biscuits and snack bars.

Wm. Wrigley Jr. Company 2007 Annual Report 19

 


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Wrigley’s strategy for communicating with consumers reflects the wisdom of our founder Wm. Wrigley Jr.: “Tell ‘em quick and tell ‘em often.”

Building powerful connections with consumers has helped Wrigley create brands that are well-known and loved worldwide. It also drives our successful selling strategy by creating value and demand, not by discounting.

Wrigley’s strategy for communicating with consumers reflects the wisdom of our founder Wm. Wrigley Jr.: “Tell ‘em quick and tell ‘em often.” The Company’s consistent investment in brand support reflects this commitment to keeping our brands top of mind with consumers and has successfully woven Wrigley brands into the fabric of everyday life around the world.

While the founding principle behind our consumer communication dates back four generations, Wrigley’s marketing organization and strategies reflect the fast-paced, technology-driven world our consumers live in today.

Wrigley champions new ideas and revolutionizes the way we speak with consumers about our brands. We understand the lives of our consumers and build brands of value that connect with them on an emotional and a practical level. We engage consumers with relevant experiences and make our brands compelling in their lives, whether it is wowing Premiere League fans in the United Kingdom or NASCAR fans in the United States.

The way consumers communicate and receive information is changing at an unprecedented pace. Traditional print and TV ads need to be used in combination with new media that reach our on-the-go, tech-savvy consumers. Whether it is integration into computer gaming, social networking or mobile marketing, Wrigley is at the forefront of new media and bringing our brands to life. In fact, candystand.com is one of the top three Web sites for consumer goods and had more than 113 million site visits in 2007.

We are also leveraging messages that resonate with our consumers and add value to our brands. In 2007, Orbit, Extra and Eclipse became the first and only sugarfree chewing gums available in the U.S. to earn the American Dental Association’s Seal of Acceptance. This seal validates more than 20 years of Wrigley’s research in dental benefits of our products and, even more importantly, clearly communicates these benefits to consumers. When asked, more than 92 percent of consumers said their purchase intent increased when they saw the ADA seal in Wrigley advertising.

All of these efforts result in Wrigley brands that make real connections with consumers and fuel velocity off store shelves. Creating demand, value and appealing brand personalities is at the heart of building the equity and relevance that will make Wrigley brands the choice of generations to come.

Delivering Aspirational Growth

 


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OUR FIVE GREATEST STRENGTHS

#3 for building brands for generations

PER-CAPITA CONSUMPTION servings

UNITED STATES

CANDYSTAND.COM VISITORS IN 2007

180

GERMANY RUSSIA POLAND

103

94

CHINA

71

INDIA

22

 

6

global confectionery sales have reached approximately $137 billion

NASCAR is the #1 spectator sport in the U.S., with more than 75 million fans and 17 of the top 20 attended sporting events in the country.

Juan Pablo Montoya, NASCAR’s 2007 Raybesto’s Rookie of the Year, proudly drove the Big Red Dodge in key NASCAR NEXTEL Cup races.

Wm. Wrigley Jr. Company 2007 Annual Report 23

 


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OUR FIVE GREATEST STRENGTHS

#4 creating portfolio diversity–strategically

Consumers drive every aspect of Wrigley’s business –

from product concept to package design to advertising and promotions to pricing. Consumer insights gathered from around the world also shape the local confectionery and brand portfolios that ensure Wrigley can win across our diverse marketplaces.

Wrigley’s strength in gum has been a consistent source of growth for more than 115 years and continues to be the principal driver of our business. Innovations, such as the 2007 introduction of “5” in the U.S., are keeping this segment fresh and dynamic.

WRIGLEY’S POSITION IN GUM AND MINTS IN THE U.S.

GLOBAL CONFECTIONERY

INDUSTRY BREAKOUT BY SEGMENT

50%

The confectionery category beyond gum presents significant opportunities to extend our reach with consumers and retailers. But, in these segments, consumer preferences and opportunities for profitable growth may vary more from country to country. Wrigley’s strategy for portfolio diversification reflects knowledge of these differences and our commitment to focus on the biggest opportunities the Company has to expand strategically, rather than just to expand.

Innovation and acquisition have created a portfolio that includes gum, mints, hard and chewy candies, gummies, pastilles, lollipops and chocolate – a combination that appeals to consumers of broad ages, cultures and geographies.

Wm. Wrigley Jr. Company 2007 Annual Report 25

 


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Setting challenging goals and then stretching to make them happen is a huge part of the character of the Wrigley team.

When we said we wanted to hit $5 billion in sales, it was an ambitious target, and we knew that to achieve this aspiration it would take great discipline, creativity and a willingness to change the way we did quite a few things.

To address these challenges, we redefined ourselves in the confectionery industry. We brought decision-making closer to our consumers, improved our ability to innovate, increased the efficiency of our supply chain, and delivered winning ideas into the marketplace faster and more effectively.

We stepped up our competitive spirit to take on new segments of confections and to address the increased competitive interest in the gum category.

We fueled our performance by developing and investing in our associates through training and educational opportunities such as Wrigley’s Leadership Academy, Marketing College and Category Management University.

WRIGLEY ASSOCIATES PICTURED ON PAGE 26–

FRONT ROW L-R: Neela Paul, Alexander Woo, Nancy Montague BACK ROW L-R: Tony West, LaVonne Frencher, Jeff Wurtzel

And, we learned to play in new territory by broadening our expertise beyond gum – both organically and through strategic acquisitions.

The entire Wrigley team came together to tackle these challenges, to collaborate and to make our aspiration a reality. And, in the process, our team grew and our culture thrived. We learned from one another – embracing our diversity and recognizing the value of discussion, debate and, ultimately, alignment behind great ideas that are made richer by the process. The special character of the Wrigley Company has been nurtured and cultivated by the 16,400 associates that live it every day.

Setting challenging goals and then stretching to make them happen is a huge part of the character of the Wrigley team. The only thing more exciting than achieving our $5 billion aspiration is the promise of great things to come.

Delivering Aspirational Growth

 


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OUR FIVE GREATEST STRENGTHS

#5 our wrigley team focus, simplicity & accountability –

These guiding principals remind all Wrigley associates to focus on priorities, eliminate complexity that can slow us down and deliver what we say we are going to do.

16,400 Wrigley associates worldwide

HELPED WRIGLEY ACHIEVE ITS $5B ASPIRATION

more than

4

GENERATIONS OF WRIGLEY PEOPLE HAVE BUILT

OUR BUSINESS

Wrigley Supply Chain Associates, Plymouth, England, UK

Wm. Wrigley Jr. Company 2007 Annual Report 29

 


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board of directors

William Wrigley, Jr.

Director of the Company since 1988

Principal Occupation: Executive Chairman of the Company since 2006, Chairman of the Board since 2004, President and Chief Executive Officer of the Company from 1999 to 2006, Vice President of the Company from 1991 to 1999 and Assistant to the President from 1985 to 1992.

John F. Bard

Director of the Company since 1999

Committees: Audit Committee and Corporate Governance Committee Principal Occupation: Senior Vice President from 1991 until 1999 and Executive Vice President from 1999 until 2000, when he retired from the Company.

Other Directorships: Weight Watchers International, Inc.

Howard B. Bernick

Director of the Company since 2001

Committees: Audit Committee and Compensation Committee Principal Occupation: President of the Bernick Holdings, Inc., since November 2006. President and Chief Executive Officer from 1994 to 2006, and a member of the Board of Directors from 1986 to 2006, of Alberto-Culver Company, a global manufacturer, marketer and distributor of beauty and hair products.

Thomas A. Knowlton

Director of the Company since 1996

Committees: Chairman of the Compensation Committee

Principal Occupation: Dean of the Faculty of Business at Ryerson University, Toronto, Canada, from 2000 until retirement in 2005. Executive Vice President of the Kellogg Company from 1992 until 1998. President of Kellogg North America from 1994 until 1998.

Other Directorships: Sun-Rype Products Ltd.

Delivering Aspirational Growth

William D. Perez

Director of the Company since 2006

Principal Occupation: President and Chief Executive Officer of the Company since October 2006. President and Chief Executive Officer of Nike, Inc. from 2004 until 2006. President and Chief Executive Officer of S.C. Johnson & Son, Inc. from 1997 to 2004.

Other Directorships: Johnson & Johnson

John Rau

Director of the Company since 2005

Committees: Compensation Committee and Corporate Governance Committee Principal Occupation: President and Chief Executive Officer since 2002, and Director since 2003, of Miami Corporation, a private holding company founded in 1917. Formerly, Mr. Rau was President and Chief Executive Officer of Chicago Title Corporation and Chicago Title and Trust Company from 1997 to 2000 and Dean, The School of Business, Indiana University, from 1993 to 1996.

Other Directorships: Nicor Inc. and First Industrial Realty Trust, Inc.

Melinda R. Rich

Director of the Company since 1999

Committees: Chairman of the Corporate Governance Committee

Principal Occupation: Vice Chairman since 2006, and Director and Managing Shareholder since 1998, of Rich Products Corporation, Buffalo, New York, a multinational, privately-held, family-owned manufacturer and distributor of food products. President of Rich Entertainment Group since 1994, Chairman of Rich Products Finance and Audit Committee. Other Directorships: M&T Bank Corporation, Buffalo, New York.

Steven B. Sample

Director of the Company since 1997

Committees: Compensation Committee and Corporate Governance Committee Principal Occupation: President of the University of Southern California since 1991.

Other Directorships: Intermec, Inc., AMCAP Fund Inc. and American Mutual Fund, Inc.

 


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FRONT ROW L-R: William D. Perez, William Wrigley, Jr., Melinda R. Rich

MIDDLE ROW L-R: Howard B. Bernick, Alex Shumate, Richard K. Smucker, Steven B. Sample BACK ROW L-R: John Rau, Thomas A. Knowlton, John F. Bard

Alex Shumate

Director of the Company since 1998

Committees: Audit Committee and Corporate Governance Committee Principal Occupation: Partner of the law firm Squire, Sanders & Dempsey, L.L.P., resident in Columbus, Ohio, since 1988, and its Managing Partner since 1991. Other Directorships: Nationwide Financial Services, Inc. and Cincinnati Bell Inc.

Richard K. Smucker

Director of the Company since 1988

Committees: Chairman of the Audit Committee

Principal Occupation: Co-Chief Executive Officer since 2001, President since 1987, a Director since 1975, and Chief Financial Officer from 2003 through 2004, of The J.M. Smucker Company, a manufacturer of fruit spreads, juices and beverages, shortening and oils, and other food- related products.

Other Directorships: The Sherwin-Williams Company.

committees of the board of directors

Audit

Richard K. Smucker, Chairman John F. Bard Howard B. Bernick Alex Schumate

Compensation

Thomas A. Knowlton, Chairman Howard B. Bernick John Rau Steven B. Sample

Corporate Governance

Melinda R. Rich, Chairman John F. Bard John Rau Steven B. Sample Alex Shumate elected officers

William Wrigley, Jr.*

Executive Chairman and Chairman of the Board of Directors

William D. Perez*

President and Chief Executive Officer

Reuben Gamoran*

Senior Vice President and Chief Financial Officer

Mary Kay Haben*

Group Vice President and Managing Director–North America

Peter R. Hempstead*

Senior Vice President–Worldwide Strategy and New Business

Surinder Kumar*

Senior Vice President and Chief Innovation Officer

Howard Malovany*

Senior Vice President, Secretary and General Counsel

Dushan Petrovich*

Senior Vice President and Chief Administrative Officer

Igor Saveliev*

Group Vice President and Managing Director–East/South Europe

Martin Schlatter*

Vice President and Chief Marketing Officer

Michael F. Wong*

Group Vice President and Managing Director–Asia/Pacific

*Executive Leadership Team

John Adams

Vice President–

Worldwide Supply Chain

Maxim Grishakov

Vice President and Managing Director–Russia

Susan Henderson

Vice President–

Corporate Communications

Donagh Herlihy

Vice President–Supply Chain Strategy and Planning and Chief Information Officer

Carol Knight

Vice President–Scientific and Regulatory Affairs

Shaun Mara

Vice President and Controller

Patrick D. Mitchell

Vice President–

Worldwide Procurement and Chief Procurement Officer

Jon Orving

Vice President–Nordic

Alan J. Schneider

Vice President and Treasurer

Tawfi k Sharkasi

Vice President and Chief Science and Technology Officer

Samson Suen

Vice President and Managing Director–China

Wm. Wrigley Jr. Company 2007 Annual Report 31


Financial Summary

 

 

 

Management’s Discussion and Analysis    33   
Quarterly Data    43   
Selected Financial Data    44   
Five-Year Total Stockholder Return    46   
Management’s Report on Internal Control      
Over Financial Reporting    47   
Report of Independent Registered Public Accounting Firm    47   
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting    48   
Consolidated Statement of Earnings    49   
Consolidated Balance Sheet    50   
Consolidated Statement of Cash Flows    52   
Consolidated Statement of Stockholders’ Equity    53   
Notes to Consolidated Financial Statements    54   
Stockholder Information    78   
Corporate Facilities and Principal Associated Companies    80   
Wrigley Brands    inside back cover   

 

 

32    Delivering Aspirational Growth


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

Management’s Discussion and Analysis (MD&A) provides an understanding of operating results and financial condition by focusing on changes in key measurers from year to year. The MD&A is organized in the following sections:

 

 

Overview

 

Results of Operations

 

Liquidity and Capital Resources

 

Significant Accounting Policies and Estimates

 

Other Matters

The MD&A should be read in conjunction with the consolidated financial statements and related notes included herein.

OVERVIEW

Corporate Overview and Strategic Focus

The Wm. Wrigley Jr. Company (the Company or Wrigley) is a recognized leader in the confectionery field and the world’s largest manufacturer and marketer of chewing gum. Wrigley is committed to achieving generational growth and prosperity for its stakeholders through executing a long-term strategic business plan based on six key objectives:

 

 

Boosting core gum business;

 

Developing organically and acquiring nongum confectionery businesses;

 

Expanding into attractive new geographies and distribution channels;

 

Driving innovation in products, processes and systems;

 

Delivering the highest quality products and solutions at the lowest cost;

 

Aggressively growing, developing and recruiting people around the world.

Wrigley plans to achieve its growth through both internal development and strategic acquisitions and pursue excellence in operational execution, innovation, brand building, worldwide distribution and merchandising to sustain its global competitive advantage.

Wrigley products are sold in over 180 countries with the goal of delivering quality synonymous with the Wrigley name while tailoring flavors and product benefits to address the tastes and needs of local consumers. While the Company continues to expand both the depth and

breadth of its product offerings, its primary competitors remain the same, including Cadbury and Mars on a global basis and Lotte, Perfetti and Hershey in the Asia, EMEAI (principally Europe) and North America regions, respectively.

Summary of 2007 Results of Operations

The Company achieved 6% unit volume and 15% net sales growth in 2007 compared to 2006, succeeding in fulfilling its long-term aspiration to pass the $5,000,000 sales threshold by 2007. Diluted earnings per share increased 20% to $2.28 in 2007 compared to $1.90 in 2006. The increase was primarily due to profit growth across all segments and a $0.17 per share favorable impact from foreign exchange, partially offset by increased advertising. Diluted earnings also included an $0.08 per share favorable impact due to lower restructuring charges between periods and a $0.07 per share gain related to the sale of certain assets. Additionally, the Company’s effective tax rate increased to 32.2% in 2007 from 31.2% in 2006.

Volume growth in 2007 was driven by solid performance across most segments, particularly the Asia and EMEAI segments. EMEAI experienced double-digit growth in Russia, including A. Korkunov®, Germany and Poland, while double-digit growth in China continued to drive Asia. North America volume was down between years. Volume in Other Geographic Regions (the Pacific and Latin America regions) was up slightly, mainly due to double-digit growth in Australia.

The Company completed its previously announced restructuring plan of the North America production network in 2007 recording restructuring charges of $13,064 in 2007 compared to $45,074 in 2006. The program was expected to generate annual pretax earnings and cash flow savings of approximately $18,000 to $22,000. Savings in 2007 were in line with this expectation.

Average foreign currency translation favorably impacted operating results in 2007 compared to 2006. This benefit was primarily due to average translation rates of stronger EMEAI, Asia and Pacific region currencies, particularly the euro, Polish zloty, Chinese renminbi and Australian dollar, to the weaker U.S. dollar. The Company maintains a strong global presence and expects that future exchange rate fluctuations will continue to impact results of operations.


 

Wm. Wrigley Jr. Company 2007 Annual Report     33


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

On January 31, 2007, Wrigley acquired an 80% interest in A. Korkunov, a premium chocolate company in Russia, with the remaining 20% to be acquired over the next couple of years.

RESULTS OF OPERATIONS

Net Sales

2007 vs. 2006

Consolidated net sales for 2007 were $5,389,100, an increase of $705,663 or 15% from 2006. Volume growth across most segments, including the A. Korkunov brand in EMEAI, increased net sales 6%, while favorable price/mix increased net sales 4%. Average translation of stronger foreign currencies to the weaker U.S. dollar increased net sales approximately 5%. New products accounted for approximately 20% of net sales in 2007.

North America net sales for 2007 were $1,756,254, essentially flat with an increase of $3,975 from 2006. A decline in volume in the U.S., due to trade inventory adjustments and the impact of higher pricing, decreased net sales 7%. This decline in volume was offset by favorable price/mix which increased net sales 7% driven in large part by broad pricing increases phased in across the product portfolio beginning late in the second quarter.

EMEAI net sales for 2007 were $2,625,914, an increase of $545,183 or 26% from 2006. Volume growth increased net sales 14%, primarily led by Russia where the A. Korkunov brand generated growth, Germany where the Extra® brand led growth and Poland where the Orbit® brand drove growth. Favorable price/mix increased net sales 3%. Average translation of stronger European currencies, primarily the euro and the Polish zloty, to the weaker U.S. dollar increased net sales approximately 9%.

Asia net sales for 2007 were $748,222, an increase of $125,369 or 20% from 2006. Volume growth increased net sales 15%, primarily led by China, where the Extra and Doublemint® brands led growth. Average translation of a stronger Chinese renminbi to the weaker U.S. dollar increased net sales approximately 5%.

Other Geographic Regions net sales for 2007 were $197,887, an increase of $29,520 or 18% from 2006. Volume growth increased net sales 6% primarily due to Australia where the Eclipse® brand led growth, and favorable price/mix increased net sales 1%. Average translation of a stronger Australian dollar to the weaker U.S. dollar increased net sales approximately 11%.

 

2006 vs. 2005

Consolidated net sales for 2006 were $4,683,437, an increase of $524,131 or 13% from 2005. Volume growth increased net sales 13%. Strong volume across all regions increased net sales 8% and the incremental volume of the acquired Life Savers®, Crème Savers®, Altoids® and Sugus® brands from the first six months of 2006 increased net sales 5%. Unfavorable geographic and product mix decreased net sales 1%. Average translation of stronger foreign currencies to the weaker U.S. dollar increased net sales approximately 1%. New products accounted for approximately 20% of net sales in 2006.

North America net sales for 2006 were $1,752,279, an increase of $217,259 or 14% from 2005. Volume growth increased net sales 15%. Volume growth was primarily driven by the incremental volume from Life Savers, Crème Savers and Altoids from the first six months of 2006, which contributed 12% to the increase in net sales, with the remaining 3% increase in net sales driven by volume growth in the core business. Unfavorable price/mix decreased net sales 1%.

EMEAI net sales for 2006 were $2,080,731, an increase of $175,465 or 9% from 2005. Volume growth increased net sales 7%, primarily led by Russia and Ukraine, where the Orbit brand led growth, as well as India and the Middle East. Favorable price/mix increased net sales 1%. Average translation of stronger European currencies, primarily the euro and the British pound, to the weaker U.S. dollar increased net sales approximately 1%.

Asia net sales for 2006 were $622,853, an increase of $116,682 or 23% from 2005. Volume growth increased net sales 21%, primarily led by China, where the Extra and Doublemint brands led growth. Unfavorable price/mix decreased net sales 1%. Average translation of a stronger Chinese renminbi to the weaker U.S. dollar increased net sales approximately 3%.

Other Geographic Regions net sales for 2006 were $168,367, an increase of $15,713 or 10% from 2005. Volume growth increased net sales 14%, primarily led by Australia and Mexico, where the Eclipse brand led growth. Unfavorable product mix decreased net sales 3%. Average translation of a weaker Australian dollar to the stronger U.S. dollar decreased net sales approximately 1%.


 

34    Delivering Aspirational Growth


 

Operating Income

The following table presents components of operating income as a percentage of net sales. Other included in merchandising and promotion includes brand research and royalty fees.

 

      2007    2006    2005

Gross profit

   52.7%     51.8%     54.2% 
 

Selling, general and administrative:

        

Advertising

   (10.8%)    (10.2%)    (11.0%)

Merchandising and promotion/other

   (5.3%)    (5.1%)    (5.7%)

Selling and other marketing

   (10.4%)    (10.6%)    (10.3%)

General and administrative

   (8.4%)    (8.4%)    (8.6%)
 

Total selling, general and administrative (SG&A)*

   (34.8%)    (34.3%)    (35.6%)
 

Operating income*

   17.9%     17.5%     18.7% 
 

*May not total due to rounding

2007 vs. 2006

Consolidated operating income for 2007 increased $141,299 or 17% compared to 2006. Average translation of stronger foreign currencies to the weaker U.S. dollar increased operating income approximately 8%. Gross profit increased $413,534 or 17% from 2006 due to increased net sales. Average translation of stronger foreign currencies increased gross profit approximately 6%. Gross profit as a percent of sales (gross profit margin) increased by 0.9 percentage points primarily due to slowing restructuring activity, which increased gross margin 0.7 percentage points. Pricing favorably impacted gross margin 1.0 percentage point in 2007; however, unfavorable cost and mix partially offset the benefit. Cost increased due to higher commodity and ingredient costs and new product innovation costs partially offset by savings from the restructuring program. SG&A expense increased $272,235 or 17% from 2006 primarily due to increased advertising and merchandising and promotion (brand support), selling expenses and general administrative expenses including incremental expenses related to A. Korkunov. These increases resulted in brand support increasing as a percentage of sales, while selling and other marketing and general and administration was down slightly as a percent of sales. Average translation of foreign currencies to the U.S. dollar increased SG&A expense approximately 5%.

 

North America operating income for 2007 increased $11,103 or 3% compared to 2006. Gross profit increased $32,921 or 4% from 2006 primarily due to a slight increase in net sales and an improvement in gross profit margin. Gross profit margin increased by 1.8 percentage points compared to 2006 primarily due to lower restructuring activity. Pricing and savings from the restructuring program favorably impacted gross margin in 2007; however, higher commodity and ingredient costs and new product innovation costs partially offset this benefit. SG&A expense increased $21,818 or 5% primarily due to brand support and selling expense.

EMEAI operating income for 2007 increased $124,996 or 21% compared to 2006. Average translation of foreign currencies to the U.S. dollar increased operating income approximately 9%. Gross profit increased $305,509 or 24% from 2006 due to increased net sales partially offset by slightly lower gross profit margin. Average translation of foreign currencies to the U.S. dollar increased gross profit approximately 9%. Gross profit margin decreased 0.8 percentage points compared to 2006 primarily due to unfavorable mix partially offset by favorable price. SG&A expense increased $180,513 or 27% from 2006 primarily due to increased brand support and selling expense, mainly in the U.K. in response to the competitive environment, and incremental expenses related to A. Korkunov. Average translation of foreign currencies to the U.S. dollar increased SG&A expense approximately 9%.

Asia operating income for 2007 increased $23,489 or 15% compared to 2006. Average translation of a stronger Chinese renminbi to the U.S. dollar increased operating income approximately 5%. Gross profit increased $52,843 or 15% from 2006 due to increased net sales offset by lower gross profit margin. Gross profit margin decreased 2.3 percentage points primarily due to unfavorable mix. Average translation of stronger asian currencies increased gross profit approximately 5%. SG&A expense increased $29,354 or 16% primarily due to increased brand support and selling expense. The impact of average foreign exchange increased SG&A expense approximately 5%.

Other Geographic Regions operating income for 2007 increased $10,040 or 45% compared to 2006. Average translation of a stronger Australian dollar to the weaker U.S. dollar increased operating income approximately 24%. Gross profit increased $23,237 or 34% from 2006 due to increased net sales and higher gross profit margin. Average translation of a stronger Australian


 

Wm. Wrigley Jr. Company 2007 Annual Report    35


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

dollar to the weaker U.S. dollar increased gross profit approximately 15%. SG&A expense increased $13,197 or 28% primarily due to increased brand support in Australia. The impact of average foreign exchange increased SG&A expense approximately 11%.

All Other operating expense for 2007 increased $28,329 or 9% compared to 2006. The increase was primarily due to higher general and administrative expenses, including the development and realignment of global marketing and sales infrastructure and research and development expense.

2006 vs. 2005

Consolidated operating income for 2006 increased $45,137 or 6% compared to 2005. Average translation of stronger foreign currencies to the weaker U.S. dollar increased operating income approximately 2%. Gross profit increased $171,344 or 8% from 2005 due to increased net sales partially offset by lower gross profit margin. Average translation of stronger foreign currencies increased gross profit approximately 1%. Gross profit margin decreased 2.4 percentage points compared to 2005. The addition of the Life Savers, Crème Savers, Altoids and Sugus brands decreased gross profit margin 1.1 percentage points and stock option and restructuring expense decreased gross profit margin 0.2 percentage points. Stock option expenses in 2006 were purely incremental compared to 2005 due to the adoption of Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment” which required the expensing of stock options beginning January 1, 2006. The remaining decrease was mostly due to unfavorable product mix and slightly higher product costs as well as a higher percentage of sales from lower margin geographies. SG&A expense increased $126,207 or 9% from 2005 primarily due to stock option expense, increased selling expenses, brand support and research and development expense.

North America operating income for 2006 decreased $26,180 or 7% compared to 2005. Gross profit increased $30,489 or 4% from 2005 due to increased net sales partially offset by lower gross profit margin. Gross profit margin decreased 4.5 percentage points compared to 2005. Higher restructuring charges and stock option expense decreased gross profit margin 0.3 percentage points. The full year in 2006 of the Life Savers, Crème Savers, Altoids and Sugus brands decreased gross margin 2.6 percentage points and the remaining decrease was primarily due to unfavorable product mix and slightly higher product cost. SG&A expense

increased $56,669 or 15% from 2005 primarily due to investment in the Life Savers, Crème Savers, Altoids and Sugus brands and stock option expense.

EMEAI operating income for 2006 increased $78,058 or 15% compared to 2005. Average translation of foreign currencies to the U.S. dollar increased operating income approximately 2%. Gross profit increased $99,654 or 9% from 2005 due to increased net sales partially offset by slightly lower gross profit margin. Average translation of foreign currencies to the U.S. dollar increased gross profit approximately 1%. Gross profit margin decreased 0.3 percentage points primarily due to unfavorable product/geographic mix partially offset by slightly higher selling prices. SG&A expense increased $21,596 or 3% from 2005 primarily due to increased selling expense to expand sales force capabilities and stock option expense partially offset by decreased brand support. Average translation of foreign currencies to the U.S. dollar increased SG&A expense approximately 1%.

Asia operating income for 2006 increased $31,196 or 24% compared to 2005. Average translation of a stronger Chinese renminbi to the U.S. dollar increased operating income approximately 3%. Gross profit increased $54,049 or 18% from 2005 primarily due to increased net sales partially offset by lower gross profit margin. Average translation of stronger asian currencies increased gross profit approximately 3%. Gross profit margin decreased 2.2 percentage points primarily due to unfavorable price/mix. SG&A expense increased $22,853 or 14% from 2005 primarily due to increased brand support, selling and administrative expense and stock option expense. The impact of average foreign exchange increased SG&A expense approximately 3%.

Other Geographic Regions operating income for 2006 increased $4,519 or 25% compared to 2005. Average translation of a weaker Australian dollar to the stronger U.S. dollar decreased operating income approximately 4%. Gross profit increased $5,509 or 9% from 2005 due to increased net sales partially offset by lower gross profit margin and the impact of exchange. Average translation of a weaker Australian dollar to the stronger U.S. dollar decreased gross profit approximately 2%. SG&A expense increased $990 or 2% from 2005 primarily due to increased selling expense and brand support. The impact of average foreign exchange decreased SG&A expense approximately 1%.


 

36    Delivering Aspirational Growth


 

All Other operating expense for 2006 increased $42,456 or 16% compared to 2005. The increase was primarily due to stock option expense, an increase in research and development expense and separation agreements related to two former executives partially offset by a nonrecurring 2005 cost associated with a shareholder approved increase in authorized shares.

Interest Expense

Interest expense was $66,004 in 2007, an increase of $4,184 from 2006. The increase was primarily due to an increase in average outstanding short-term debt related to the acquisition of A. Korkunov and an increase in average short-term interest rates.

Interest expense was $61,820 in 2006, an increase of $30,172 from 2005. The increase was primarily due to the Company’s issuance of long-term debt and commercial paper in mid-2005 to fund the acquisition of the Life Savers, Crème Savers, Altoids and Sugus brands.

Investment Income

Investment income was $10,610 in 2007, an increase of $2,581 from 2006. The increase was primarily due to higher cash balances and investment yields.

Investment income was $8,029 in 2006, a decrease of $7,684 from 2005. The decrease was primarily due to lower cash balances.

Other Income (Expense), Net

Other income, net was $24,785 in 2007, compared to $1,365 in 2006. The increase was primarily due to nonrecurring gains on the sale of certain corporate assets and the New Jersey factory (closed as a result of the restructuring program), partially offset by minority interest in earnings related to A. Korkunov.

Other income, net was $1,365 in 2006, compared to other expense, net of $5,741 in 2005. The change was primarily due to a gain recognized on the sale of property in EMEAI and other nonrecurring items.

Income Taxes

Income taxes were $300,158 in 2007, up $60,488 or 25% from 2006. The increase was primarily due to the increase in pretax earnings of $163,116 or 21% and an increase in the consolidated effective tax rate to 32.2% in 2007 from 31.2% in 2006. The increase in the effective tax rate was due to higher U.S. taxes on foreign-sourced income.

 

Income taxes were $239,670 in 2006, an increase of $2,262 or 1% from 2005. The increase was primarily due to the increase in pretax earnings of $14,387 or 2% partially offset by a decrease in the effective tax rate to 31.2% in 2006 from 31.5% in 2005.

LIQUIDITY AND CAPITAL RESOURCES

Operating Cash Flow and Current Ratio

Net cash provided by operating activities was $1,003,980 in 2007 compared to $721,425 in 2006 and $740,304 in 2005. The increase in 2007 was primarily due to increased earnings and decreased working capital investment. The decrease in 2006 compared to 2005 was primarily due to increased levels of working capital mainly related to increased inventory levels to meet customer demand and timing of settlement of payables and accruals, partially offset by increased net earnings. The Company had a current ratio (current assets divided by current liabilities) in excess of 1.4 to 1 at December 31, 2007 and December 31, 2006.

Additions to Property, Plant and Equipment

Capital expenditures in 2007 were $251,429, a decrease of $76,329 from 2006. The decrease was primarily due to the timing of manufacturing capacity expansion and a nonrecurring purchase of real estate in 2006. Capital expenditures in 2006 were $327,758, an increase of $45,989 from 2005. The increase was primarily due to the acquisition of certain properties and higher spending on worldwide capacity. The Company expects additions to property, plant and equipment in 2008 will be higher than 2007 and plans to fund them from the Company’s cash flow from operations.

Share Repurchases and Dividends

On May 19, 2006 and February 1, 2008, the Company’s Board of Directors authorized additional stock repurchases of up to $500,000 and $800,000, respectively. During 2007, the Company repurchased 4,684 shares totaling $250,116, including 4,673 shares totaling $249,532 under the Board of Directors authorized $500,000 Share Repurchase Program and 11 shares totaling $584 under the stockholder approved Management Incentive Plan (MIP). Board authorization for $1,053,660 remains available for repurchase under the Share Repurchase Programs.


 

Wm. Wrigley Jr. Company 2007 Annual Report    37


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

During 2006, the Company repurchased 2,141 shares totaling $126,112, including 2,132 shares totaling $125,570 under the Board of Directors authorized Share Repurchase Program and 9 shares totaling $542 under the shareholder approved MIP.

On April 4, 2006, the Company’s stockholders authorized a onetime stock dividend of one share of Class B Common Stock for each four shares of Common Stock issued and one share of Class B Common Stock for each four shares of Class B Common Stock issued. In connection with the distribution of Class B Common Stock to holders of both Common Stock and Class B Common Stock, cash payments were made in lieu of issuing any fractional shares of Class B Common Stock. All share information included herein has been adjusted to reflect the stock dividend. The Company distributed the one-time stock dividend on May 1, 2006.

Dividends paid per common share increased 14% to $1.13 in 2007. Total dividend payments were $309,838, $276,021 and $241,669 in 2007, 2006 and 2005, respectively. Dividends paid per common share increased 15% to $0.99 in 2006.

Borrowing Arrangements and External Capital Resources

At December 31, 2007, the Company had no commercial paper outstanding under its commercial paper program established pursuant to the April 29, 2005 Issuing and Paying Agency Agreement with JPMorgan Chase Bank.

Pursuant to the shelf registration prospectus (Form S-3) filed with the SEC by the Company on March 1, 2005, the Company may issue, from time to time, debt securities, preferred stock, common stock, warrants, stock purchase contracts or stock purchase units with a maximum aggregate initial offering price of all securities sold by the Company under the prospectus of $2,000,000. With the issuance on July 14, 2005 of $500,000 of five-year notes maturing on July 15, 2010, bearing a coupon interest rate of 4.30% and of $500,000 of ten-year notes maturing on July 15, 2015, bearing a coupon interest rate of 4.65%, the Company has $1,000,000 available under the shelf registration prospectus. Interest on the senior unsecured notes is payable semi-annually on January 15th and July 15th.

On July 14, 2005, the Company entered into an agreement for a $600,000, five-year unsecured credit facility maturing in July 2010 to support the commercial paper borrowings; however, the Company may also draw on the facility for general purposes.

 

Under certain conditions, the Company may request an increase in aggregate commitment under this credit facility, not to exceed a total of $1,000,000. This credit facility requires maintenance of certain financial covenants, with which, at December 31, 2007, the Company was compliant. The Company had no borrowings outstanding under the credit facility at December 31, 2007.

On May 11, 2007, the Company entered into an agreement for a 100,000 (euro) term loan which matured on December 31, 2007. The loan had an average interest rate of 4.3% and was paid in full as scheduled at December 31, 2007.

Contractual Obligations

The Company enters into arrangements that obligate it to make future payments under contracts such as debt, leases and contractual purchase obligations. The Company enters into these arrangements in the normal course of business in order to ensure adequate levels of cash funding, raw materials, office and warehousing space and machinery, equipment or services for significant capital projects. Debt obligations, which include senior notes, are recognized as liabilities in the Company’s Consolidated Balance Sheet at December 31, 2007. Operating lease obligations and contractual purchase obligations, which primarily relate to anticipated raw material requirements for 2008, are not recognized as liabilities in the Company’s Consolidated Balance Sheet.

A summary of the Company’s contractual obligations at December 31, 2007 is as follows:

 

   

Payments Due By Period

Contractual
Obligations
  Total   Less than
1 Year
 

2-3

Years

 

4-5

Years

  Thereafter

Debt

  $ 1,000,000   —     500,000   —     500,000

Interest on senior notes

    250,500   44,750   89,500   46,500   69,750

Operating leases

    172,125   41,001   59,413   37,109   34,602

Purchase obligations

    1,539,351   1,084,191   336,318   80,121   38,721
 

Total

  $ 2,961,976   1,169,942   985,231   163,730   643,073
 

Additionally, the Company has no contractual obligations with related parties which may materially affect its results of operations, cash flows or financial condition.


 

38    Delivering Aspirational Growth


 

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The Company’s significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements. The application of certain policies requires significant judgments or an estimation process that can affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions, as discussed below, that it believes are reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known. The following are the accounting policies and estimates with the greatest potential to have a significant impact on the Company’s operating results, financial position, cash flows and footnote disclosures.

Marketing and Promotional Programs The Company’s significant marketing and promotional programs include introductory allowances, promotional and performance allowances, slotting fees and coupon redemption costs and are recorded as reductions of revenue. The Company enters into promotional arrangements, primarily with its retail customers, many of which require periodic payments based on customers’ estimated annual purchases. The Company estimates these future purchases on a routine basis in order to properly account for these payments. In addition, the Company routinely commits to one-time promotional programs with customers that require the Company to estimate the ultimate cost of each promotional program and accrue that cost until paid. The Company tracks its commitments for promotional programs and, using historical experience, estimates and records an accrual at the end of each period for the earned but unpaid costs. While actual amounts paid may differ from these estimates, management believes that its estimates of promotional accruals fairly represent future requirements.

Allowance for Doubtful Accounts In the normal course of business, the Company extends credit to customers satisfying predefined credit criteria. An allowance for doubtful accounts, which is reported within accounts receivable, is determined through an analysis of the aging of receivables at the date of the financial statements, assessments of collectibility based on historical trends, assessment of customer credit worthiness and an evaluation of current and projected economic conditions. Actual collections of accounts receivable could differ from management’s estimates due to changes in future economic or industry conditions or specific customer’s financial condition.

 

Valuation of Long-Lived Assets Long-lived assets, primarily property, plant and equipment, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset reflected in the Company’s Consolidated Balance Sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions.

Pension and Other Post-Retirement Plan Benefits The Company sponsors pension and other post-retirement plans in various forms covering substantially all employees in the U.S. as well as employees in certain other countries who meet eligibility requirements. Independent actuaries perform the required calculations to determine pension and other post-retirement plan cost. Several statistical and other factors which attempt to anticipate future events are used in calculating the costs and liabilities related to the plans. These factors include assumptions about the discount rates, expected returns on plan assets, rates of future employee compensation increases and trends in health care costs. In addition, the Company also uses actuarial assumptions such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions used by the Company may differ from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may impact the amount of pension and post-retirement liabilities and costs recorded by the Company.

In 2008, the Company will maintain its average long-term rate of return assumptions for the assets in its U.S. and non-U.S. plans. The Company will also maintain its estimate for compensation increases for the non-U.S. plans and raise its estimate for the U.S. plans 0.25 percentage points to track recent trends. Additionally, the discount rate to determine pension cost for the U.S. and non-U.S. plans will increase approximately 0.50 percentage points in 2008 due to the higher rates in the credit market. The Company expects 2008 pension cost to slightly increase compared to 2007.

Income Taxes Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax


 

Wm. Wrigley Jr. Company 2007 Annual Report    39


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

reporting using tax rates in effect for the years in which the differences are expected to reverse. U.S. federal income taxes are provided for that portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable, but not on the portion that is considered to be permanently invested in foreign subsidiaries. The Company, along with third-party advisers, periodically reviews assumptions and estimates of the Company’s probable tax obligations using historical experience in tax jurisdictions and informed judgments.

Goodwill and Other Intangible Assets The Company reviews goodwill annually to test for impairment. The impairment test is a two step process. The first step compares the fair value of each reporting unit to its carrying value. The Company’s reporting units are consistent with the reportable segments identified in Note 16 to the consolidated financial statements. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and requires no further testing. If the carrying value of the net assets assigned to that reporting unit exceeds the fair value of the reporting unit, the Company must perform the second step of the impairment test to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss is recorded to write down the goodwill to fair value. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include projected revenue growth rates, operating margins, capital expenditures and related depreciation to calculate estimated cash flows. In addition, certain judgments and assumptions are made in allocating shared assets and liabilities to determine the carrying values of reporting units. The Company’s goodwill impairment testing, which was performed during the fourth quarter of 2007, did not result in an impairment charge in 2007.

Other intangible assets consist primarily of brands, patents and licenses, trademarks and customer relationships. Except for indefinite lived brands, these assets are amortized on a straight-line basis over their estimated useful lives of 3 to 17 years. Brands determined to have indefinite lives are not amortized, but rather are tested annually for impairment or whenever events indicate there may be a potential risk of impairment. The Company measures impairment by comparing the discounted expected cash flows attributable to the brand to its carrying value. Similar to goodwill, the use of projected discounted cash flows involves certain judgments and assumptions. The Company’s other intangible asset impairment testing did not result in an impairment charge in 2007.

 

Restructuring The Company accounts for its restructuring plans, which primarily include severance and employee related benefit costs and costs to consolidate or close facilities, as those obligations are incurred and evaluates asset useful lives and records accelerated depreciation in connection with such plans. The Company estimates the expense for these plans, which are approved by senior management, by accumulating detailed estimates for each element of the restructuring. This includes the estimated costs of employee severance and related benefits, accelerated depreciation and estimated salvage values of property, plant and equipment, other contractual obligations and any other qualifying exit costs related to the plan. These estimated costs are grouped by specific projects within the overall plan and are then monitored regularly by corporate finance personnel, as well as by finance personnel at each affected location. Such costs represent management’s best estimate, but require assumptions about the restructuring that may change over time. Estimates are evaluated periodically to determine if a change is required. The Company’s estimate of current restructuring activities is described in Note 11 to the consolidated financial statements.

OTHER MATTERS

Market Risk

Inherent in the Company’s operations are certain market risks related to changes in foreign currency exchange rates and interest rates. Changes in these factors could cause fluctuations in the Company’s net earnings, cash flows and to the fair values of market risk sensitive financial instruments. In the normal course of business, the Company identifies these risks and mitigates their financial impact through its corporate policies and hedging activities. The Company’s hedging activities include the use of derivative financial instruments. The Company uses derivatives only when the hedge is highly effective and does not use them for trading or speculative purposes. The counterparties to the hedging activities are highly rated financial institutions. Additional information regarding the Company’s use of financial instruments is included in the Notes to the Consolidated Financial Statements.

Foreign Exchange Risk The Company’s primary area of market risk is in foreign currency exchange. The Company is exposed to fluctuations in foreign currency primarily in the translation of foreign


 

40    Delivering Aspirational Growth


 

currency earnings to U.S. dollars, cash flows related to inventory purchases and sales and the value of foreign currency investments in subsidiaries. The Company’s primary exchange rate exposure is with the euro and Canadian dollar against the U.S. dollar and the Polish zloty, Russian ruble, British pound and Chinese renminbi against the euro. The Company enters into foreign currency exchange contracts to facilitate managing foreign currency risk related to inventory purchases and sales and net investments in foreign subsidiaries. All contracts have been designated as hedges of anticipated foreign currency transactions, transactional exposures or the value of foreign currency investments in subsidiaries.

The total notional amount of forward contracts outstanding at December 31, 2007 was $1,043,024. The following table details the most significant forward positions held at December 31, 2007. All contracts are valued in U.S. dollars using December 31, 2007 exchange rates and expire on or before December 31, 2008. Average contractual exchange rates are based on the currency received.

 

Contract Description    Contract
Amount
   Average
Contractual
Exchange Rate

Receive CAD/Sell USD

   $ 172,078    1.065

Receive EUR/Sell RUB

     152,411    0.028

Receive USD/Sell EUR

     125,591    1.445

Receive USD/Sell CAD

     121,113    0.979

Receive PLN/Sell EUR

     118,166    3.730

Receive EUR/Sell USD

     65,284    0.723

Receive EUR/Sell CNY

     50,296    0.097

Receive EUR/Sell GBP

     35,938    1.452

Receive GBP/Sell EUR

     28,906    0.727

Receive USD/Sell AUD

     23,445    0.837
 

The Company’s strategy for the use of derivative financial instruments in managing foreign currency exchange rate exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations and the market effects on foreign currency exchange rates. The Company’s derivative instruments are highly effective as hedges of the underlying cash flow, fair value or net investments. Therefore, any reasonably possible near-term changes in market rates would not result in material near-term impact on future earnings, fair values or cash flows.

 

Interest Rate Risk – Exposure to interest rate risk on the Company’s long-term debt is mitigated because it carries a fixed coupon rate of interest. Market risk, as measured by the change in fair value resulting from a hypothetical 10% change in interest rates, is not material. Based on average short-term debt outstanding during 2007, a hypothetical 100 basis point increase in short-term interest rates would increase interest expense approximately $2,300. Interest rate risk can also be measured by estimating the net amount by which the fair value of the Company’s financial liabilities would change as a result of movements in interest rates. Based on a hypothetical, immediate 100 basis point decrease in interest rates at December 31, 2007, the market value of the Company’s debt, in aggregate, would increase by approximately $50,000.

Forward-Looking Statements

This report and any documents incorporated by reference may include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements and financial disclosure that are not historical facts are forward-looking statements within the meaning of such regulations, as well as the Private Securities Litigation Reform Act of 1995. These statements or disclosures may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to the Company, based on current beliefs of management, as well as assumptions made by, and information currently available to, the Company.

Forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. Although the Company believes these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary. Significant factors that may cause actual results to differ materially from the forward-looking statements are included in the section entitled “Risk Factors” (refer to Part II, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) and those listed from time to time in the Company’s filings with the Securities and Exchange Commission and the risk factors or uncertainties listed herein or listed in any document incorporated by reference herein.


 

Wm. Wrigley Jr. Company 2007 Annual Report    41


Management’s Discussion and Analysis

Dollar and share amounts in thousands except per share figures

 

The factors identified are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on the Company. All forward-looking statements included in this report and in the documents incorporated by reference herein are expressly qualified in their entirety by the foregoing cautionary statements. Except as required by law, the Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

Risk Factors

The Company’s operations and financial results are subject to a number of risks and uncertainties that could adversely affect the Company’s operations, performance, development or business. Significant factors that may cause actual results to differ materially include, without limitation:

 

 

Availability or retention of retail space. In those countries where the Company maintains leadership in the gum segment, the Company’s ability to retain preferred retail space allocation will impact results. If the Company is not able to retain this allocation, the Company’s results could be negatively impacted.

 

 

Availability of raw materials. The Company uses many raw materials to manufacture chewing gum and other confectionery products including sugar, corn syrup, flavoring oils, polyols and high intensity sweeteners. While these products are generally readily available on the open market, if the Company is unable to maintain the availability, pricing and sourcing of these raw materials, the Company’s results could be negatively impacted.

 

 

Changes in demographics and consumer preferences. The Company operates in an increasingly competitive industry. As such, the Company’s continued success is dependent upon its ability to continue to create and market products which appeal to diverse consumers. Failure to adequately anticipate and react to changing demographics and product preferences, the failure of new or existing products to be favorably received or the Company’s inability to otherwise adapt to changing customer and consumer needs could result in increased capital, marketing or other expenditures or may result in a decrease in category share growth, any of which could have a material adverse effect on the Company’s operating results.

 

 

Changes in foreign currency and marketplace conditions. Manufacturing and sales of a significant portion of the Company’s products are outside the United States. The majority of countries in which the Company operates tend to be politically, socially and economically stable. To the extent there is political or social unrest, civil war, terrorism or significant economic instability, the results of the Company’s business in such countries could be negatively impacted. In addition, given the global nature of our business, we earn revenue, pay expenses, incur liabilities and hold assets in a variety of foreign currencies which we translate into U.S. dollars for financial reporting purposes at the then-applicable exchange rate. Consequently, volatility in foreign currencies could have a material adverse effect on the Company’s results of operations.

 

 

Increased competition, discounting and other competitive actions. The Company competes worldwide with other well-established manufacturers of confectionery products, including chewing gum. The Company’s results may be negatively impacted by ineffective advertising, or by failure to sufficiently counter aggressive competitive actions. In addition, discounting and other competitive actions may also make it more difficult for the Company to maintain its operating margins.

 

 

Underutilization of or inadequate manufacturing capacity. Unanticipated movements in consumer demands could result in inadequate manufacturing capacity or underutilization of the Company’s manufacturing capacity, which could negatively impact manufacturing efficiencies and costs.

 

 

Government regulations. Government regulations with respect to import duties, tariffs, taxes and environmental controls, both in and outside the United States, could negatively impact the Company’s costs and ability to compete in domestic or foreign marketplaces.

 

 

Labor Stoppages. To the extent the Company experiences any material labor stoppages, such disputes or strikes could negatively affect shipments from suppliers or shipments of finished product.

 

 

Outcome of integrating acquired businesses. The Company’s inability to successfully integrate any acquired businesses or assets could cause actual results to differ from anticipated results or expectations of the business.


 

42    Delivering Aspirational Growth


Quarterly Data

In thousands of dollars except per share amounts

 

Results of Operations

 

    Net Sales   Gross
Profit
  Net
Earnings
  Net
Earnings
Per Share
(Diluted)
 

2007

       

First quarter

  $ 1,254,046   648,491   142,701   0.52

Second quarter

    1,377,780   734,500   169,813   0.61

Third quarter

    1,333,052   712,484   164,472   0.59

Fourth quarter

    1,424,222   745,307   155,019   0.56
 

Total

  $ 5,389,100   2,840,782   632,005   2.28
 
    Net Sales   Gross
Profit
  Net
Earnings
  Net
Earnings
Per Share
(Diluted)
 

2006

       

First quarter

  $ 1,074,888   557,967   111,885   0.40

Second quarter

    1,206,053   628,041   140,638   0.51

Third quarter

    1,178,667   625,163   148,029   0.53

Fourth quarter

    1,223,829   616,077   128,825   0.46
 

Total

  $ 4,683,437   2,427,248   529,377   1.90
 

Note: The 2007 quarterly results of operations include the impact of the acquisition of A. Korkunov on January 31, 2007, the sale of the L.A. Dreyfus factory in Edison, New Jersey in the fourth quarter and the sale of certain corporate assets in the second quarter. The 2007 and 2006 quarterly results of operations include charges related to the restructuring program.

 

Market Prices

Although there is no established public trading market for the Company’s Class B Common Stock, these shares are at all times convertible into shares of Common Stock on a one-for-one basis and are entitled to identical dividend payments. The Common Stock of the Company is listed and traded on the New York and Chicago Stock Exchanges. The table below presents the closing high and low sales prices for the two most recent years on the New York Stock Exchange.

 

     2007
High
   2007
Low
   2006
High
   2006
Low
 

First quarter

   $ 52.47    48.89    54.54    49.69

Second quarter

     59.12    50.84    51.19    44.52

Third quarter

     64.51    55.09    47.78    43.16

Fourth quarter

     68.44    58.55    53.23    45.35
 

Dividends

The following table indicates the quarterly breakdown of aggregate dividends declared per share of Common Stock and Class B Common Stock for the two most recent years. Dividends declared in a quarter are paid in the following quarter.

 

     2007    2006          
           

First quarter

   $ .29    .256      

Second quarter

     .29    .256      

Third quarter

     .29    .256      

Fourth quarter

     .29    .256      
           

Total

   $ 1.16    1.024      
           

 

Wm. Wrigley Jr. Company 2007 Annual Report    43


Selected Financial Data

In thousands of dollars and shares, except per share amounts, stockholders of record and employees

 

Operating Data

        
     2007     2006     2005     2004  
   

Net sales

   $ 5,389,100     4,683,437     4,159,306     3,648,592  

Gross profit (1)

     2,840,782     2,427,248     2,255,904     2,033,375  

Income taxes

     300,158     239,670     237,408     227,542  

Net earnings (2)

     632,005     529,377     517,252     492,954  

Per share of Common Stock (diluted)

     2.28     1.90     1.83     1.75  

Dividends paid

     309,838     276,021     241,669     207,803  

Per share of Common Stock

     1.126     .992     .860     .740  

As a percent of net earnings

     49 %   52 %   47 %   42 %

Dividends declared per share of Common Stock

     1.16     1.024     .896     .752  

Average shares outstanding

     275,357     277,556     280,964     280,796  
   

Other Financial Data

        
     2007     2006     2005     2004  
   

Net property, plant and equipment

   $ 1,560,064     1,422,516     1,282,412     1,142,620  

Total assets

     5,231,512     4,661,598     4,394,353     3,166,703  

Working capital (3)

     448,658     454,098     325,283     787,940  

Debt (4)

     1,000,000     1,065,000     1,100,000     90,000  

Stockholders’ equity

     2,817,480     2,388,092     2,214,422     2,178,684  

Return on average equity

     24.3 %   23.0 %   23.5 %   24.7 %

Stockholders of record at close of year

     41,020     40,986     41,105     41,376  

Employees at close of year

     16,400     15,800     14,800     14,800  

Market price of stock

        

High

     68.44     54.54     58.20     55.78  

Low

     48.89     43.16     50.81     44.18  
   

 

(1) 2007, 2006 and 2005 include restructuring charges related to the North American production network of $13,064, $45,074 and $40,223, respectively.

 

(2) 2007 includes restructuring charges, net of tax, related to the North American production network of $8,857 or $0.03 per share; and gains, net of tax, from asset sales of $19,327 or $0.07 per share; 2006 includes restructuring charges, net of tax, related to the North American production network of $31,011 or $0.11 per share and the first year of stock option expense, net of tax, of $23,825 or $0.09 per share recognized pursuant to SFAS No. 123(R); 2005 includes restructuring charges, net of tax, related to the North American production network of $27,553 or $0.10 per share; 1998 includes factory closure gain, net of tax, of $6,763 or $0.02 per share: and 1997 includes factory closure costs, net of tax, of $2,145 or $0.01 per share.

 

44    Delivering Aspirational Growth


           
2003     2002     2001     2000     1999     1998     1997  
   
3,069,088     2,746,318     2,401,419     2,126,114     2,045,227     1,990,286     1,923,963  
1,746,672     1,559,633     1,371,290     1,193,312     1,121,596     1,095,298     1,031,212  
205,647     181,896     164,380     150,370     136,247     136,378     122,614  
445,894     401,525     362,986     328,942     308,183     304,501     271,626  
1.58     1.42     1.29     1.16     1.06     1.05     .94  
194,633     181,232     167,922     159,138     153,812     150,835     135,680  
.692     .644     .596     .561     .531     .520     .585  
44 %   45 %   46 %   48 %   50 %   50 %   50 %
.704     .656     .608     .561     .592     .524     .468  
281,203     281,431     281,686     283,796     289,653     289,910     289,910  
   
           
2003     2002     2001     2000     1999     1998     1997  
   
956,180     836,110     684,379     607,034     599,140     520,090     430,474  
2,527,371     2,108,296     1,777,793     1,574,740     1,547,745     1,520,855     1,343,126  
825,797     620,205     581,519     540,505     551,921     624,546     571,857  
                         
1,820,821     1,522,576     1,276,197     1,132,897     1,138,775     1,157,032     985,379  
26.7 %   28.7 %   30.1 %   29.0 %   26.8 %   28.4 %   28.9 %
40,954     40,534     38,701     37,781     38,626     38,052     36,587  
12,000     11,250     10,800     9,800     9,300     9,200     8,200  
           
47.12     47.12     42.64     38.65     40.25     41.73     32.82  
40.84     35.37     34.35     23.95     26.60     28.38     21.82  
   

 

(3) Working Capital equals current assets less current liabilities.

 

(4) 2005 includes issuance of long-term debt and commercial paper used to fund the acquisition of certain confectionery assets from Kraft Foods Global, Inc.; 2004 includes line of credit used to fund the acquisition of certain confectionery businesses of the Joyco Group.

Note: The Company acquired an 80% interest in A. Korkunov, on January 31, 2007, certain confectionery assets from Kraft Foods Global, Inc. on June 26, 2005 and certain confectionery business of the Joyco Group on April 1, 2004.

 

Wm. Wrigley Jr. Company 2007 Annual Report    45


Five-Year Total Stockholder Return

 

The following graph and table indicate the Company’s total stockholder return for the five-year period ended December 31, 2007, as compared to the total return for the S&P 500 Composite Index and a custom peer benchmark index, S&P Packaged Foods & Meats Group, assuming a common starting point of 100.

Please note that the graph and table are five-year historical representations and, as such, are not indicative of future performance relative to the indices.

Total Stockholder Returns (TSR)

 

    2002   2003   2004   2005   2006   2007
 

Wrigley

  100   104   130   127   126   146

S&P 500

  100   129   143   150   173   183

S&P Packaged Foods & Meats

  100   108   129   119   138   141
 

 

* Full-year 2007 TSRs were 5.5% for the S&P 500, 2.2% for the S&P Packaged Foods & Meats Index and 15.4% for Wrigley stock.

 

LOGO


 

46    Delivering Aspirational Growth


Management’s Report on Internal Control

Over Financial Reporting

 

Management of the Wm. Wrigley Jr. Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 as required by the Securities Exchange Act of 1934 Rule 13a-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of

the Treadway Commission. Based on our evaluation under the framework in Internal Control –Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2007.

Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of December 31, 2007, as stated in their report which appears on page 48.

WM. WRIGLEY JR. COMPANY

Chicago, Illinois

February 11, 2008


 

Report of Independent Registered Public

Accounting Firm

 

To the Stockholders and Board of Directors

of the Wm. Wrigley Jr. Company:

We have audited the accompanying consolidated balance sheets of the Wm. Wrigley Jr. Company (the Company) as of December 31, 2007 and 2006 and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2007

and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 2 and 3 to the financial statements, the Company adopted the provisions of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment in fiscal year 2006 and the Financial Accounting Standards Board’s Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 in fiscal year 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2008 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois

February 11, 2008


 

Wm. Wrigley Jr. Company 2007 Annual Report    47


Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting

 

To the Stockholders and Board of Directors

of the Wm. Wrigley Jr. Company:

We have audited Wm. Wrigley Jr. Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately

and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of the Company as of December 31, 2007 and 2006 and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007 and our report dated February 11, 2008 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois

February 11, 2008


 

48    Delivering Aspirational Growth


Consolidated Statement of Earnings

In thousands of dollars except per share amounts

 

      2007      2006      2005  

Net sales

   $ 5,389,100      4,683,437      4,159,306  

Cost of sales

     2,535,254      2,211,115      1,863,179  

Restructuring charges

     13,064      45,074      40,223  
                        

Gross profit

     2,840,782      2,427,248      2,255,904  

Selling, general and administrative expense

     1,878,010      1,605,775      1,479,568  
                        

Operating income

     962,772      821,473      776,336  

Interest expense

     (66,004 )    (61,820 )    (31,648 )

Investment income

     10,610      8,029      15,713  

Other income (expense), net

     24,785      1,365      (5,741 )
                        

Earnings before income taxes

     932,163      769,047      754,660  

Income taxes

     300,158      239,670      237,408  
                        

Net earnings

   $ 632,005      529,377      517,252  
                        

Per Share Amounts

        

Net earnings per share of Common Stock:

        

Basic

   $ 2.30      1.91      1.84  

Diluted

   $ 2.28      1.90      1.83  

Dividends paid per share of Common Stock

   $ 1.126      .992      .860  
                        

See accompanying Notes to Consolidated Financial Statements.

 

Wm. Wrigley Jr. Company 2007 Annual Report    49


Consolidated Balance Sheet

In thousands of dollars and shares

 

      December 31,
2007
   December 31,
2006

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 278,843    253,666

Short-term investments, at amortized cost

     635    1,100

Accounts receivable (less allowance for doubtful accounts:

     

2007 – $5,791; 2006 – $ 6,431)

     469,221    463,231

Inventories:

     

Finished goods

     280,712    241,897

Raw materials, work in process and supplies

     339,370    351,088
             

Total inventories

     620,082    592,985

Other current assets

     180,997    170,245
             

Total current assets

     1,549,778    1,481,227

Deferred charges and other assets

     214,457    194,382

Goodwill

     1,422,957    1,147,603

Other intangible assets

     484,256    415,870

Property, plant and equipment, at cost:

     

Land

     81,231    78,625

Buildings and building equipment

     734,623    717,374

Machinery and equipment

     2,055,063    1,886,018
             

Total property, plant and equipment

     2,870,917    2,682,017

Less accumulated depreciation

     1,310,853    1,259,501
             

Net property, plant and equipment

     1,560,064    1,422,516
             

TOTAL ASSETS

   $ 5,231,512    4,661,598
             

 

50    Delivering Aspirational Growth


      December 31,
2007
     December 31,
2006
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Short-term debt

   $      65,000  

Accounts payable

     371,349      327,671  

Accrued expenses

     500,552      413,942  

Dividends payable

     79,965      71,106  

Income and other taxes payable

     149,254      149,410  
                 

Total current liabilities

     1,101,120      1,027,129  

Other noncurrent liabilities

     312,912      246,377  

Long-term debt

     1,000,000      1,000,000  
                 

Total liabilities

     2,414,032      2,273,506  

Stockholders’ equity:

     

Preferred Stock – no par value

     

Authorized: 20,000 shares

     

Issued: None

     

Common Stock–no par value

     

Common Stock

     

Authorized: 1,000,000 shares

     

Issued: 2007 – 231,579 shares; 2006 – 228,945 shares

     14,084      14,018  

Class B Common Stock – convertible

     

Authorized: 300,000 shares

     

Issued: 2007 – 58,972 shares; 2006 – 61,606 shares

     1,412      1,478  

Additional paid-in capital

     140,357      93,602  

Retained earnings

     3,264,484      2,949,705  

Common Stock and Class B Common Stock in treasury, at cost

     

2007 – 15,176 shares; 2006 – 13,644 shares

     (712,841 )    (606,045 )

Accumulated other comprehensive income (loss)

     109,984      (64,666 )
                 

Total stockholders’ equity

     2,817,480      2,388,092  
                 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 5,231,512      4,661,598  
                 

See accompanying Notes to Consolidated Financial Statements.

 

Wm. Wrigley Jr. Company 2007 Annual Report    51


Consolidated Statement of Cash Flows

In thousands of dollars

 

      2007      2006      2005  

Operating Activities

        

Net earnings

   $ 632,005      529,377      517,252  

Adjustments to reconcile net earnings to net cash
provided by operating activities:

        

Depreciation and amortization

     217,778      200,113      175,285  

Net (gain) loss on retirements of property, plant and equipment

     (11,441 )    6,182      11,714  

Noncash share-based compensation

     52,189      49,269      26,685  

Deferred income taxes

     51,338      (74,062 )    6,344  

(Increase) decrease in:

        

Accounts receivable

     32,431      (22,984 )    (80,686 )

Inventories

     5,407      (75,579 )    (67,676 )

Other current assets

     7,558      (31,757 )    (30,791 )

Deferred charges and other assets

     (37,444 )    111,656      10,514  

Increase (decrease) in:

        

Accounts payable

     9,834      1,684      106,044  

Accrued expenses

     30,765      (26,869 )    85,584  

Income and other taxes payable

     (9,373 )    77,479      3,363  

Other noncurrent liabilities

     22,933      (23,084 )    (23,328 )
                        

Net cash provided by operating activities

     1,003,980      721,425      740,304  

Investing Activities

        

Additions to property, plant and equipment

     (251,429 )    (327,758 )    (281,769 )

Proceeds from retirements of property, plant and equipment

     37,253      13,990      10,127  

Acquisitions, net of cash acquired

     (293,590 )         (1,437,428 )

Purchases of short-term investments and other

     (851 )         (7,484 )

Maturities and sales of short-term investments

     1,100           29,148  
                        

Net cash used in investing activities

     (507,517 )    (313,768 )    (1,687,406 )

Financing Activities

        

Dividends paid

     (309,838 )    (276,021 )    (241,669 )

Common Stock purchased

     (244,116 )    (143,454 )    (214,656 )

Common Stock issued

     128,924      26,381      66,102  

Issuances (redemptions) of commercial paper, net

     (65,000 )    (35,000 )    100,000  

Excess tax benefits related to share-based payments

     12,110      1,011       

Debt issuance costs

               (16,375 )

Repayments under the line of credit

               (90,000 )

Borrowings of long-term debt

               1,000,000  
                        

Net cash provided by (used in) financing activities

     (477,920 )    (427,083 )    603,402  

Effect of exchange rate changes on cash and cash equivalents

     6,634      15,388      (27,149 )
                        

Net increase (decrease) in cash and cash equivalents

     25,177      (4,038 )    (370,849 )

Cash and cash equivalents at beginning of year

     253,666      257,704      628,553  
                        

Cash and cash equivalents at end of year

   $ 278,843      253,666      257,704  
                        

Supplemental Cash Flow Information

        

Income taxes paid

   $ 236,767      219,873      249,824  

Interest paid

   $ 61,184      57,621      8,752  

Interest and dividends received

   $ 10,610      8,031      15,711  
                        

See accompanying Notes to Consolidated Financial Statements.

 

52    Delivering Aspirational Growth


Consolidated Statement of Stockholders’ Equity

In thousands of dollars and shares

 

     Common
Shares
Outstanding
    Common
Stock
  Class B
Common
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Common
Stock In
Treasury
    Accumulated
Other
Comprehensive
Income (Loss)
    Stockholders’
Equity
 

Balance December 31, 2004

  191,260     $ 13,254   2,242     17,764     2,435,838     (346,087 )   55,673     2,178,684  
                                                 

Net earnings

          517,252         517,252  

Changes in other comprehensive income (loss) (Note 14)

              (83,691 )   (83,691 )

Dividends to shareholders

          (251,405 )       (251,405 )

Treasury share purchases

  (3,388 )           (231,998 )     (231,998 )

Options exercised and stock awards granted

  1,427         10,611       64,322       74,933  

Tax benefit related to stock options exercised

        9,385           9,385  

Conversion of Class B

               

Common Stock

  300       20   (20 )            

ESOP tax benefit

          1,262         1,262  
                                                 

Balance December 31, 2005

  189,599     $ 13,274   2,222     37,760     2,702,947     (513,763 )   (28,018 )   2,214,422  
                                                 

Net earnings

          529,377         529,377  

Changes in other comprehensive income (loss) (Note 14)

              73,837     73,837  

Adjustment to initially apply

               

SFAS No. 158 (Note 14)

              (110,485 )   (110,485 )

Dividends to shareholders

          (284,661 )       (284,661 )

Treasury share purchases

  (2,141 )           (126,112 )     (126,112 )

Options exercised and stock awards granted

  733         (64 )     33,830       33,766  

Tax benefit related to stock options exercised

        1,011           1,011  

Conversion of
Class B Common Stock

  29,615       744   (744 )            

ESOP tax benefit

          2,042         2,042  

Share-based payments

               

(Notes 2 and 12)

        54,895           54,895  
                                                 

Balance December 31, 2006

  217,806     $ 14,018   1,478     93,602     2,949,705     (606,045 )   (64,666 )   2,388,092  
                                                 

Net earnings

          632,005         632,005  

Changes in other comprehensive income (loss) (Note 14)

              174,650     174,650  

Dividends to shareholders

          (318,698 )       (318,698 )

Treasury share purchases

  (4,684 )           (250,116 )     (250,116 )

Options exercised and
stock awards granted

  3,155         (11,369 )     143,320       131,951  

Tax benefit related to
stock options exercised

        12,110           12,110  

Conversion of Class B

               

Common Stock

  2,606       66   (66 )            

ESOP tax benefit

          1,472         1,472  

Share-based payments

               

(Notes 2 and 12)

        46,014           46,014  
                                                 

Balance December 31, 2007

  218,883     $ 14,084   1,412     140,357     3,264,484     (712,841 )   109,984     2,817,480  
                                                 

See accompanying Notes to Consolidated Financial Statements.

 

Wm. Wrigley Jr. Company 2007 Annual Report    53


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

1. DESCRIPTION OF BUSINESS

The principal business of the Wm. Wrigley Jr. Company (the Company) is manufacturing and marketing gum and other confectionery products worldwide. All other businesses constitute less than 10% of combined revenues, operating income and identifiable assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and any majority-owned investments. Intercompany balances and transactions have been eliminated. Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect assets, liabilities, revenues, expenses and certain financial statement disclosures. Actual results may vary from those estimates. Additionally, certain amounts reported in 2006 and 2005 have been reclassified to conform to the 2007 presentation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.

Accounts Receivable

In the normal course of business, the Company extends credit to customers satisfying predefined credit criteria. The Company believes it has limited concentration of credit risk due to the diversity of its customer base. Accounts receivable, as shown on the Consolidated Balance Sheet are net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historical trends and an evaluation of the impact of current and projected economic conditions. The Company monitors collectibility of its accounts receivable on an ongoing basis by analyzing the aging of its accounts receivable, assessing the credit worthiness of its customers and evaluating the impact of reasonably likely changes in economic conditions that may impact credit risks.

Inventories

Inventories are valued at cost on a last-in, first-out (LIFO) basis for U.S. associated companies and at the lower of cost (principally

first-in, first-out basis) or market for non-U.S. associated companies. Inventories consist of materials, labor and overhead associated with the production process. Inventories totaled $620,082 and $592,985 at December 31, 2007 and 2006, respectively, including $235,880 and $259,854, respectively, valued at cost on a LIFO basis. If current costs had been used, such inventories would have been $9,877 and $12,790 lower than reported at December 31, 2007 and 2006, respectively.

Derivative Financial Instruments

All derivatives are recognized in the Consolidated Balance Sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income (loss) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in earnings in the current period.

Property, Plant and Equipment

Land, building and equipment are recorded at cost. Depreciation is provided by the straight-line method over the estimated useful lives of the respective assets: buildings and building equipment – 12 to 50 years; machinery and equipment – 3 to 20 years. Expenditures for new property, plant and equipment and improvements that substantially extend the capacity or useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When property is retired or otherwise disposed, the cost and related depreciation are removed from the accounts and any related gains or losses are included in net earnings.

Impairment of Long-Lived Assets

The Company reviews long-lived assets on at least an annual basis to determine if there are indicators of impairment. When indicators of impairment are present, the Company evaluates the carrying value of the long-lived assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. The Company adjusts the net book value of the underlying assets to fair value if the sum of the expected future cash flows is less than carrying value.


 

54    Delivering Aspirational Growth


 

Pension and Other Post-Retirement Plan Benefits

Pension and other post-retirement plan benefits are expensed as applicable employees earn benefits. The recognition of expense is significantly impacted by estimates made by management such as discount rates used to value certain liabilities, expected return on assets and future health care costs. The Company uses third-party specialists to assist management in appropriately measuring the expense associated with pension and other post-retirement plan benefits.

Foreign Currency Translation

The Company has determined that the functional currency for each associated company, except for certain Eastern European entities, is its local currency. Some Eastern European entities use the U.S. dollar as their functional currency, as a significant portion of their businesses is indexed to the U.S. dollar. The Company translates the results of operations of its foreign associated companies at the average exchange rates during the respective periods. Foreign currency denominated assets and liabilities are translated into U.S. dollars at exchange rates in effect at the respective balance sheet dates, resulting in foreign currency translation adjustments. Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity.

Revenue Recognition

Revenue from product sales is recognized when title passes to the customer. Revenue is recorded net of promotional and other allowances, payment discounts and sales returns, which are recognized as a reduction of revenue at the time of sale or based on the timing of specific promotions.

Distribution Costs

The Company classifies distribution costs, including shipping and handling costs, as cost of sales.

Advertising

The Company expenses all advertising costs in the year incurred. Advertising expense was $584,097, $479,251 and $457,709 in 2007, 2006 and 2005, respectively.

 

Research and Development

All expenditures for research and development are expensed in the year incurred. Research and development expense, recorded primarily in selling, general and administrative expense, was $60,796, $53,663 and $42,571 in 2007, 2006 and 2005, respectively.

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees” as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment” using the modified-prospective transition method. Under that transition method, compensation cost recognized in 2007 and 2006 included compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, and those granted subsequent to January 1, 2006, based on the grant-date fair value estimate in accordance with the provisions of SFAS No. 123(R). Additionally, as of the beginning of 2006, the Company requires that all employees elect their long-term stock grant deferral intentions prior to the grant date, which characterizes most long-term stock grants as equity awards under SFAS No. 123(R) and resulted in reclassifying the previously recognized liability to additional paid-in capital during 2006. Results for prior periods have not been restated.

Total pretax stock-based compensation recognized in the Consolidated Statement of Earnings was $52,189, $49,269 and $26,685 and related tax benefit was $16,805, $15,372 and $9,340 for 2007, 2006 and 2005, respectively. Compensation expense recognized in 2007 and 2006 was due to stock options, long-term stock grants, stock awards and restricted stock awards recorded under SFAS No. 123(R) at fair value and recognized ratably over the vesting period, except for stock options issued to retirement-eligible participants, which are recognized on an accelerated basis. Compensation expense recognized in 2005 was due to long-term stock grants, stock awards and restricted stock awards recorded under APB No. 25 at intrinsic value and recognized ratably over the vesting period. The following table illustrates the effect on net earnings and earnings per share for


 

Wm. Wrigley Jr. Company 2007 Annual Report    55


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

2005, if the Company had applied the fair value recognition provisions of SFAS No. 123 to share-based compensation.

 

      2005

Net earnings as reported

   $ 517,252

Add: stock-based compensation expense included in earnings, net of tax

     17,345

Deduct: total stock-based compensation expense determined under fair value method for all awards, net of tax

     34,689
 

Pro forma net earnings

   $ 499,908
 

Pro forma basic and diluted earnings per share:

  

As reported – basic

   $ 1.84

As reported – diluted

   $ 1.83

Pro forma – basic

   $ 1.78

Pro forma – diluted

   $ 1.77

The Company’s stock-based compensation plans are discussed further in Note 12.

Income Taxes

Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. U.S. federal income taxes are provided on the portion of the income of foreign associated companies that is expected to be remitted to the U.S. and be taxable, but not on the portion that is considered to be permanently invested in the foreign subsidiaries.

On October 22, 2004, the American Jobs Creation Act of 2004 (the Act), which provided for a special one-time tax deduction for certain foreign earnings repatriated in 2005, was signed into law. In 2005, pursuant to the Act, the Company repatriated $286,000. The incremental income tax expense due to this repatriation was $5,500 net of U.S. deferred taxes previously provided on these foreign earnings.

 

Restructuring

The Company’s restructuring plans primarily include severance and employee related benefit costs, costs to consolidate or close facilities, accelerated depreciation and other qualifying exit costs. The Company estimates the expense for these plans, which are approved by senior management, by accumulating detailed estimates for each element of the restructuring. Such costs represent management’s best estimate, but require assumptions about the restructuring that may change over time. Estimates are evaluated periodically and were finalized at December 31, 2007.

Goodwill and Other Intangible Assets

The Company reviews goodwill for impairment annually. The Company compares the fair value of each reporting unit, which is consistent with the reportable segments in Note 16, to its carrying value. If the reporting unit’s fair value exceeds the carrying value of its net assets, goodwill is not considered impaired. If the carrying value exceeds its fair value, the Company must analyze the fair value of the reporting unit’s goodwill relative to its carrying value. If its carrying value exceeds its fair value, an impairment loss is recorded to write goodwill down to fair value. The Company reviews intangible assets with indefinite lives for impairment annually. The Company compares the fair value of the intangible asset to its carrying value. If the intangible asset’s fair value exceeds its carrying value, it is not impaired. If the intangible asset’s carrying value exceeds its fair value, an impairment loss is recorded to write the intangible asset down to fair value.

Determining the fair value of a reporting unit and intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include projected revenue growth rates, operating margins, capital expenditures and related depreciation to calculate estimated cash flows. In addition, certain judgments and assumptions are made in allocating shared assets and liabilities to determine the carrying values of reporting units.

The Company amortizes intangible assets with determinable useful lives over 3 to 17 years. The Company has a number of acquired brands that have been determined to have indefinite lives due to the nature of the business. The Company evaluates


 

56    Delivering Aspirational Growth


 

a number of factors to determine whether an indefinite life is appropriate including the competitive environment, market share, brand history and operating plans. The Company reviews intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. When indicators of impairment are present, the Company evaluates the recoverability of the carrying value of an intangible asset in relation to its operating performance and future undiscounted cash flows. If the asset’s carrying value is not recoverable, an impairment loss is recorded to write down the intangible asset to fair value.

Investments in Debt and Equity Securities

The Company’s investments in debt securities, which typically mature in one year or less, are held to maturity and are valued at amortized cost, which approximates fair value. The aggregate fair value at December 31, 2007 and 2006 was $635 and $1,100, respectively.

During 2005, the Company donated its marketable equity securities to the Wrigley Foundation and realized a gain of $13,735, which was recorded in other income (expense), net. Prior to the donation, the Company’s investments in marketable equity securities were held for an indefinite period resulting in unrealized holding gains of $15,351 at December 31, 2004. Unrealized holding gains, net of tax, of $9,979 at December 31, 2004 were included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Deferred Charges and Other Assets

Deferred charges and other assets included deferred compensation assets of $112,800 and $93,200 at December 31, 2007 and 2006, respectively.

Accrued Expenses

Accrued expenses included $155,800 and $116,900 of payroll expenses at December 31, 2007 and 2006, respectively.

Other Noncurrent Liabilities

Other noncurrent liabilities included $126,000 and $112,500 of deferred compensation and $95,500 and $89,500 of pension and post-retirement liabilities at December 31, 2007 and 2006, respectively.

 

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” was issued. FIN 48 prescribes a recognition threshold and measurement attribute for tax positions. The Company adopted FIN 48 at the beginning of fiscal year 2007 with no material impact to its financial position, earnings or cash flows. See Note 13 for related disclosures.

In September 2006, SFAS No. 157, “Fair Value Measurements” was issued. SFAS No. 157 provides a single definition of fair value, a framework for measuring fair value, and expands disclosures about fair value measurements. This pronouncement is effective for the Company’s fiscal year beginning 2008. The Company does not expect a material impact to its financial position, earnings or cash flows upon adoption.

In February 2007, SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” was issued. SFAS No. 159 provides entities with an option to report selected financial assets and liabilities at fair value. SFAS No. 159 is effective for the Company’s fiscal year beginning 2008. The Company does not expect a material impact to its financial position, earnings or cash flows upon adoption.

In December 2007, SFAS No. 141(R), “Business Combinations” was issued. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of the assets acquired and liabilities assumed in the transaction at the acquisition date; the immediate expense recognition of transaction costs; and accounting for restructuring plans separately from the business combination among others. SFAS No. 141(R) is effective for the Company’s fiscal year beginning 2009 and adoption is prospective only. SFAS No. 141(R) fundamentally changes many aspects of existing accounting requirements for business combinations. As such, if the Company enters into any business combinations after the adoption of SFAS 141(R), a transaction may significantly impact the Company’s financial position and earnings, but not cash flows, compared to the Company’s recent acquisitions, accounted for under existing U.S. GAAP requirements, due to the reasons described above. Additionally, the Company provided certain income tax reserves for unrecognized tax benefits resulting


 

Wm. Wrigley Jr. Company 2007 Annual Report    57


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

from prior acquisitions. Under existing accounting requirements, if recognized, those income tax reserves would not affect the effective tax rate. However, upon the adoption of SFAS No. 141(R), if recognized, those income tax reserves will affect the effective tax rate. See Note 13.

In December 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” was issued. SFAS No. 160 requires entities to report noncontrolling (minority) interests as a component of shareholders’ equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS No. 160 is effective for the Company’s fiscal year beginning 2009 and adoption is prospective only; however, presentation and disclosure requirements described above must be applied retrospectively. The Company does not expect a material impact to its financial position, earnings or cash flows upon adoption.

4. EARNINGS PER SHARE

Basic earnings per share are computed based on the weighted average number of common shares outstanding, excluding any dilutive effects of stock options, restricted stock and long-term stock grants. Dilutive earnings per share are computed based on the weighted average number of common shares outstanding including any dilutive effect of stock options, restricted stock and long-term stock grants. The dilutive effect of stock options, restricted stock and long-term stock grants is calculated under the treasury stock method. Earnings per share were calculated as follows:

 

      2007    2006    2005

Net earnings

   $ 632,005    529,377    517,252

Basic shares outstanding

     275,357    277,556    280,964

Effect of dilutive securities

     2,056    843    1,320
 

Dilutive Common Stock

     277,413    278,399    282,284
 

Net earnings per share:

        

Basic

   $ 2.30    1.91    1.84

Diluted

   $ 2.28    1.90    1.83
 

 

The effect of dilutive securities on dilutive Common Stock excludes average outstanding stock options of 4,435 in 2007, 6,195 in 2006 and 756 in 2005 as these stock options were antidilutive.

5. GOODWILL AND OTHER INTANGIBLES

The following table summarizes goodwill by segment:

 

      December 31,
2007
   December 31,
2006

North America

   $ 942,615    921,302

EMEAI

     410,410    163,003

Asia

     69,932    63,298
 

Total

   $ 1,422,957    1,147,603
 

Goodwill changed between periods primarily due to the tentative purchase price allocation for A. Korkunov and foreign currency translation.

The following table summarizes intangible assets with indefinite lives and determinable lives, subject to amortization, including the total gross carrying value and accumulated amortization:

 

      December 31,
2007
    December 31,
2006
 

Intangible assets with indefinite lives:

    

Brands

   $ 450,376     391,523  
   

Intangible assets with determinable lives:

    

Trademarks

     21,859     18,778  

Patents and licenses

     23,146     20,585  

Customer relationships

     20,635     10,200  
   
     65,640     49,563  

Accumulated amortization

     (31,760 )   (25,216 )
   

Total

   $ 484,256     415,870  
   

 

58    Delivering Aspirational Growth


 

Amortization expense was $6,607 in 2007, $2,941 in 2006 and $2,418 in 2005. The following table summarizes the estimated amortization expense for the five succeeding fiscal years for trademarks, patents and licenses and customer relationships held at December 31, 2007:

 

For The Years Ending      

2008

   $ 7,353

2009

     7,514

2010

     4,278

2011

     3,751

2012

     3,026
 

6. LONG-TERM DEBT

On April 29, 2005, the Company entered into an Issuing and Paying Agency Agreement with JPMorgan Chase Bank pursuant to which the Company may establish one or more unsecured commercial paper programs. The Company had no commercial paper outstanding under its commercial paper program at December 31, 2007 and $65,000 of commercial paper outstanding under its commercial paper program bearing an average interest rate of 5.26% at December 31, 2006.

On July 14, 2005, the Company issued $1,000,000 of senior unsecured notes under the shelf registration filed on March 1, 2005. The senior note offering included $500,000 of five-year notes maturing on July 15, 2010, bearing a coupon interest rate of 4.30% and $500,000 of ten-year notes maturing on July 15, 2015, bearing a coupon interest rate of 4.65%. Interest is payable semi-annually on January 15th and July 15th. At December 31, 2007, the fair value of the senior notes, based on market quotes, was $972,400.

Also on July 14, 2005, the Company entered into an agreement for a $600,000 five-year unsecured credit facility maturing in July 2010. The Company intends to use this credit facility primarily to support its commercial paper program; however, the Company may also draw on the facility for general purposes. Under certain conditions, the Company may request an increase in aggregate commitment under this credit facility, not to exceed a total of $1,000,000. This credit facility requires maintenance of certain

financial covenants, with which, at December 31, 2007, the Company was compliant. The Company had no borrowings outstanding under the credit facility at December 31, 2007 and 2006.

On May 11, 2007, the Company entered into an agreement for a 100,000 (euro) term loan which had an average interest rate of 4.3% and matured on December 31, 2007. Scheduled principal payments of 30,000, 30,000 and 40,000 were due in July, September and December 2007, respectively. The loan was paid in full as scheduled during 2007.

7. LEASES

The Company leases certain facilities, equipment and vehicles under agreements that are classified as operating leases. Rental expense pursuant to operating leases was $43,922, $31,463 and $24,506 in 2007, 2006 and 2005, respectively. Future minimum payments, by year and in the aggregate, under operating leases having an original term greater than one year at December 31, 2007 were as follows:

 

For The Years Ending      

2008

   $ 41,001

2009

     33,278

2010

     26,135

2011

     19,266

2012

     17,843

Thereafter

     34,602
 

Total

   $ 172,125
 

8. FINANCIAL INSTRUMENTS

Derivative Financial Instruments and Hedging Activities

The Company enters into forward exchange contracts and purchases currency options to hedge against foreign currency exposures of forecasted purchase and sales transactions between associated companies as well as purchases with outside vendors. In addition, the Company enters into forward exchange contracts and purchases currency options to hedge the foreign currency exposures of forecasted future royalty payments from, and net investments in, associated companies. The Company generally hedges forecasted transactions over a period of twelve months or less.


 

Wm. Wrigley Jr. Company 2007 Annual Report    59


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

On the date a derivative contract is entered into, the Company designates the derivative as either: (1) a hedge of a recognized asset or liability (a fair value hedge), (2) a hedge of a forecasted transaction (a cash flow hedge), or (3) a hedge of a net investment in a foreign operation (a net investment hedge). The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking derivatives that are designated as hedges to specific assets, liabilities or forecasted transactions. The Company also formally assesses both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting.

For fair value hedges, the effective portion of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, is recorded in earnings. For cash flow hedges, the effective portion of the changes in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects earnings, generally within the next twelve months. For net investment hedges, the effective portion of the change in the fair value of derivatives used as a net investment hedge of a foreign operation is recorded in foreign currency translation adjustment.

The ineffective portion of the change in fair value of any derivative designated as a hedge is immediately recognized in other income (expense), net. Ineffectiveness recognized during 2007, 2006 and 2005 was immaterial.

At December 31, 2007, open foreign exchange contracts for a number of currencies, primarily U.S. and Canadian dollars, euro, Polish zloty, Russian ruble and Chinese renminbi, maturing at various dates through December 2008, had an aggregate notional amount of $1,043,024. The aggregate notional amount of open foreign exchange contracts at December 31, 2006 was $808,424. The fair value of open foreign exchange contracts and currency options, as determined by forward rates and bank

quotes, was a $16,832 gain recorded in other current assets and $8,439 loss recorded in accrued expenses at December 31, 2007 and 2006, respectively.

Fair Value of Other Financial Instruments

The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, commercial paper and accounts payable approximate fair value.

9. COMMON STOCK

On April 4, 2006, the Company’s stockholders authorized a one-time stock dividend of one share of Class B Common Stock for each four shares of Common Stock issued and one share of Class B Common Stock for each four shares of Class B Common Stock issued. In connection with the distribution of Class B Common Stock to holders of both Common Stock and Class B Common Stock, cash payments were made in lieu of issuing any fractional shares of Class B Common Stock. All share information included herein has been adjusted to reflect the stock dividend. The Company distributed the one-time stock dividend on May 1, 2006.

In addition to its Common Stock, the Company has Class B Common Stock outstanding. Each share of Class B Common Stock has ten votes, is restricted as to transfer or other disposition, is entitled to the same dividends as Common Stock, and is convertible at any time into one share of Common Stock.

Treasury stock may be acquired for the Company’s Management Incentive Plan (MIP) or under the Share Repurchase Program resolutions adopted by the Board of Directors. During 2007, 2006 and 2005, the Company purchased 4,673 shares, 2,132 shares and 3,382 shares at an aggregate cost of $249,532, $125,570, and $231,610, respectively, under the Board of Director authorizations. At December 31, 2007, $253,660 remains available for repurchase under Share Repurchase program resolutions.

On February 1, 2008, the Company’s Board of Directors authorized additional stock repurchases of up to $800,000 raising the total available for repurchase to $1,053,660.

In May 2001, the Company’s Board of Directors approved a Stockholder Rights Plan. Under the plan, each holder of Common


 

60    Delivering Aspirational Growth


 

Stock and Class B Common Stock at the close of business on June 6, 2001, automatically received a distribution of one right for each share of Common Stock or Class B Common Stock held. Each right entitles the holder to purchase 1.25 one-thousandth of a share of Series A Junior Participating Preferred Stock for two- hundred dollars. The rights will trade along with, and not separately from, the shares of Common Stock and Class B Common Stock unless they become exercisable. The rights become exercisable, and they will separate, become tradable, and entitle stockholders to buy Common Stock if any person or group (Acquiring Person) becomes the beneficial owner of, or announces a tender or exchange offer for 15% or more of the Company’s Common Stock. In such event, all rights, except for those held by the Acquiring Person, become rights to purchase five-hundred dollars worth of Common Stock for two-hundred-fifty dollars, unless redeemed by the Board of Directors. In case of a subsequent merger or other acquisition of the Company after the rights become exercisable, holders of rights other than the Acquiring Person may purchase shares of the acquiring entity at a 50% discount. The rights will expire on June 6, 2011, unless redeemed earlier, or renewed by the Company’s Board of Directors.

At December 31, 2007 and 2006, there were 20,000 shares of preferred stock authorized with no par value, of which 1,000 Series A Junior Participating Preferred shares were reserved for issuance upon exercise of the rights.

10. ACQUISITIONS

On January 31, 2007, the Company acquired an 80% interest in A. Korkunov, a privately held premium chocolate company in Russia. The acquisition provided an opportunity for the Company to enter the chocolate confectionery marketplace, a significant component of the broader confectionery market, with a well recognized brand in a growing region. The Company acquired the 80% interest in A. Korkunov for $318,590. The Company financed the acquisition through short-term debt and cash on hand. Included in this purchase price is $25,000 the Company expects to pay in 2008 to A. Korkunov’s minority shareholders due to the entity exceeding certain performance targets in 2007; however, final resolution and payment remains subject to review and due diligence. The Company expects to acquire an additional 10% in 2008 and the final 10% in 2009. The purchase price allocation remains preliminary and the results of operations have been included since January 31, 2007.

 

The following table contains a tentative purchase price allocation summarizing the assets and liabilities acquired, including the restated basis for 80% of the fair value with the remaining basis carried at historical cost, as prescribed for step acquisitions, at the date of acquisition:

 

 

Current assets

   $ 22,834

Net property, plant and equipment

     54,024

Goodwill

     207,987

Intangibles

     64,488

Other noncurrent assets

     2,025
 

Total assets

     351,358
 

Current liabilities

     18,705

Noncurrent liabilities

     14,063
 

Net assets acquired

   $ 318,590
 

The fair value of intangible assets includes $54,776 with indefinite lives and $9,712 with determinable lives. Goodwill recognized is included in the EMEAI segment. All goodwill recognized for income tax purposes is deductible.

On June 26, 2005, the Company completed a transaction with Kraft Foods Global, Inc. to acquire certain confectionery assets. The transaction included the purchase of the Life Savers, Altoids, Crème Savers and Sugus brands. In addition, the transaction included the purchase of certain production facilities in the United States and Europe. The purchase provided additional diversification in key categories of mints and hard and chewy candy, expanded the product offering to customers’ worldwide, added scale and brand depth to the innovation pipeline and increased efficiency across the Company’s supply chain. The results of operations for the businesses acquired have been included in the consolidated financial results of the Company since June 26, 2005.

Cash consideration, including direct acquisition costs, totaled $1,436,259, net of proceeds received from the sale of the Trolli brand and related assets. The acquisition was initially funded with $1,350,000 of commercial paper, negotiated in part for purposes of this transaction, with the remaining amount funded from the Company’s available cash.


 

Wm. Wrigley Jr. Company 2007 Annual Report    61


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The Company determined the fair values based on independent appraisals, discounted cash flow analyses, quoted market prices and estimates made by management. To the extent the purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, such excess was recorded as goodwill.

The following table contains the final purchase price allocation, which summarizes the fair values of the assets acquired and liabilities incurred as a result of integration plans, at the date of acquisition.

 

Inventory

   $ 47,365

Net property, plant and equipment

     86,904

Other noncurrent assets

     45,808

Goodwill

     912,093

Intangibles

     367,695

Total assets

     1,459,865

Accrued liabilities

     23,606

Net assets acquired

   $ 1,436,259

The fair value of the intangible assets as of the acquisition date is primarily associated with brand names which are not subject to amortization.

Other noncurrent assets included $28,356 associated with Sugus operations in China, the final purchase of which did not close until April 17, 2006.

Goodwill of $912,093 was recognized in connection with the acquisition, with $890,902 and $21,191 included in the North America and EMEAI segments, respectively. All goodwill recognized for income tax purposes is deductible.

The Company closed the acquired facility in Bridgend, Wales as of April 18, 2006. The Company recognized severance and other cash closing costs of $23,606 as a result of the Bridgend and other facility closures as well

as other asset transfers. The majority of the activities were significantly completed by the first quarter of 2007.

Acquisition — Pro Forma Financial Statements

Results of operations of the acquired Kraft Foods Global, Inc. confectionery assets are included in the Company’s consolidated financial statements from June 26, 2005. The following table includes the unaudited pro forma combined net sales, earnings and earnings per share for 2005, as if the Company had completed the acquisitions of the Kraft Goods Global, Inc. confectionery assets as of January 1, 2005.

In determining the unaudited pro forma amounts, income taxes, interest expense and depreciation and amortization of assets have been adjusted to the accounting base recognized for each in recording the combinations.

 

      2005

Net sales

   $ 4,372,864

Net earnings

   $ 519,217

Net earnings per share:

  

Basic

   $ 1.85

Diluted

   $ 1.84

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of 2005, nor are they necessarily indicative of future consolidated results.

11. RESTRUCTURING

During the second quarter of 2005, the Company announced plans to restructure its North America production network in order to maximize supply chain efficiencies. As a result, the Company closed its chewing gum plant in Chicago, Illinois and its L.A. Dreyfus gum base subsidiary in Edison, New Jersey, transferring production to remaining facilities. The Company sold the New Jersey property in 2007 and is in the process of preparing the Illinois property for sale.


 

62    Delivering Aspirational Growth


 

The aggregate charges to the Company’s net earnings to close and reconfigure its facilities were $98,361 on a pretax basis, all of which had been incurred at December 31, 2007 including $85,297 incurred in fiscal years 2006 and 2005. Of the total restructuring costs, the Company incurred $72,861 in the North America segment and $25,500 in the All Other segment. The restructuring costs relate primarily to enhanced early retirement programs, severance, facility closure and accelerated depreciation resulting from the decreased useful lives of certain assets, as well as start-up costs related to the transfer of production. All expenses are recorded as restructuring charges in the Consolidated Statement of Earnings.

The Company incurred a $13,064 charge for 2007, including $8,488 in the North America segment with the remaining $4,576 in the All

Other segment. The Company incurred a $45,074 charge for 2006, including $35,356 in the North America segment with the remaining $9,718 in the All Other segment. The Company incurred a $40,223 charge for 2005, including $29,017 in the North America segment with the remaining $11,206 in the All Other segment.

The Company recognized a gain of $14,506 included in other income, upon the sale of the New Jersey property during 2007. The Company held the Illinois property for sale at December 31, 2007; however, final sale will depend on certain activities, some of which are external and beyond the Company’s control. The restructuring charges discussed herein are exclusive of any realized or potential gains on the sales of these properties.


 

     Employee
Separation
    Accelerated
Depreciation
    Closure
Costs
    Other
Costs
    Total  

Accrued Balance at December 31, 2004

  $                  

Charge to expense

    29,664     9,954     6     599     40,223  

Cash payments

    (1,064 )       (6 )       (1,070 )

Noncash utilization (A)

    (22,051 )   (9,954 )           (32,005 )
   

Accrued balance at December 31, 2005

  $ 6,549             599     7,148  
   

Charge to expense

    8,353     19,376     14,656     2,689     45,074  

Cash payments

    (4,944 )       (14,505 )   (3,288 )   (22,737 )

Noncash utilization

        (19,376 )           (19,376 )
   

Accrued balance at December 31, 2006

  $ 9,958         151         10,109  
   

Charge to expense

    (898 )   1,894     11,563     505     13,064  

Cash payments

    (8,147 )       (9,756 )   (505 )   (18,408 )

Noncash utilization

    52     (1,894 )   (1,426 )       (3,268 )
   

Accrued balance at December 31, 2007

  $ 965         532         1,497  
   

Cumulative restructuring charge

  $ 37,119     31,224     26,225     3,793     98,361  
   

(A) Noncash employee separation relates to pension and post-retirement benefits.

 

Wm. Wrigley Jr. Company 2007 Annual Report    63


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

12. STOCK-BASED COMPENSATION PLANS

The Management Incentive Plan (MIP), as amended, is designed to provide key employees the opportunity to participate in the long-term growth and profitability of the Company through cash and equity-based incentives. The MIP authorizes the granting of up to 25,000 shares of the Company’s new or reissued Common Stock. In accordance with the MIP, shares of Company stock or deferral share units may be granted or awarded under the stock option, long-term stock grant, restricted stock and stock award programs. Deferral share units are also awarded to nonemployee directors. Stock options are granted at an exercise price equal to the fair market value of Common Stock at the grant date with the

exception of 250 premium exercise price options granted in 2006, vest ratably over a four year period and expire after ten years. Long-term stock grants are earned based on the Company’s total stockholder return relative to the total stockholder return of a peer group index during the five-year cliff vesting period and may be awarded between 0% to 200% of the initial target grant. Stock awards are awarded at a fixed value based upon a prescribed formula. Restricted stock is granted at a share price equal to the fair market value of the Common Stock at the grant date and cliff vests over a two or three year period. The Company issues Common Stock for share-based compensation awards from Common Stock in treasury.

The Company’s stock option activity during 2007 was as follows:

 

     Number
of
Shares
    Weighted
Average
Exercise
Price
  Remaining
Contractual
Life
  Aggregate
Intrinsic
Value

Outstanding at December 31, 2006

  15,232     $ 47.24    

Granted

  3,442       58.20    

Exercised

  (2,940 )     43.94    

Forfeited and cancelled

  (864 )     51.07    
           

Outstanding at December 31, 2007

  14,870     $ 50.16   7.2 years   $ 126,047
           

Exercisable at December 31, 2007

  6,898     $ 46.25   5.7 years   $ 85,066
           

 

64    Delivering Aspirational Growth


 

The Company’s long-term stock grant activity during 2007 was as follows:

 

      Number of Shares
(Based on Target)
    Weighted Average
Fair Value

Outstanding at December 31, 2006

   1,326     $  44.68

Granted

   511     43.06

Vested and awarded

   (206 )   45.68

Forfeited

   (167 )   44.02
 

Outstanding at December 31, 2007

   1,464     $  44.04
 

The Company’s restricted stock activity during 2007 was as follows:

 

      Number of Shares     Weighted Average
Fair Value

Outstanding at December 31, 2006

   81       $  49.89

Granted

   34       54.53

Vested

   (6 )     54.07

Forfeited

   (13 )     52.07
 

Outstanding at December 31, 2007

   96     $ 50.83
 

The weighted average fair value of equity instruments granted during 2007, 2006 and 2005 was as follows:

 

    

Weighted Average

Fair Value

      2007    2006    2005

Stock options

   $ 10.62    8.36    12.02

Long-term stock grants

     43.06    43.42    44.52

Restricted stock

     54.53    47.01    53.98
      

The fair value of stock options is estimated utilizing the Black-Scholes method. The fair value of long-term stock grants is estimated utilizing a weighted average payout analysis that estimates probabilities of all possible award points between 0% and 200%. The fair value of restricted stock is based on the grant date fair

market value of the Company’s Common Stock. The total fair value estimates for each of these awards granted are recognized net of an estimate for expected forfeitures. The Company reevaluates the estimate periodically and adjusts the forfeiture rate prospectively, as necessary, to ultimately recognize the actual expense based on service provided and shares vested. Lastly, the fair value of stock awards is based on the specific payout formula to determine the award amount.

The table below summarizes the key assumptions used in the Black-Scholes model to calculate the fair value of stock options:

 

      Interest
Rate
    Dividend
Yield
    Expected
Volatility
    Expected
Life

2007

   4.65 %   1.94 %   12.75 %   6 years

2006

   4.96 %   2.20 %   13.5 %   6 years

2005

   3.88 %   1.62 %   18.5 %   6 years
             

The risk free interest rate is based on U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The dividend yield is based on the current dividend yield at the time of the grant. The expected volatility is based on the historical six year monthly average of the Company’s Common Stock from the date of grant. The expected life is based on consideration of the term and vesting period.

Cash received from the exercise of stock options was $128,924, $26,381 and $66,102 for 2007, 2006 and 2005, respectively, and is included in Common Stock Issued in the Consolidated Statement of Cash Flows. The intrinsic value of stock options exercised was $44,525, $4,639 and $26,826 in 2007, 2006 and 2005, respectively.

During 2007, 2006 and 2005, the Company awarded 55, 74 and 65 stock awards with an aggregate fair value of $2,875, $3,821 and $3,557, respectively.

The total remaining unearned compensation related to all share-based compensation at December 31, 2007 was $84,670 and will be amortized over a weighted average remaining service period of 2.1 years.


 

Wm. Wrigley Jr. Company 2007 Annual Report    65


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

13. INCOME TAXES

Income taxes are based on pretax earnings, which were distributed geographically as follows:

 

      2007    2006    2005

Domestic

   $ 102,849    90,835    140,762

Foreign

     829,314    678,212    613,898
      

Total

   $ 932,163    769,047    754,660
      

Reconciliation of the provision for income taxes computed at the U.S. federal statutory rate of 35% to the reported provision for income taxes is as follows:

 

      2007     2006     2005  

Provision at U.S. federal statutory rate

   $ 326,257     269,166     264,131  

State taxes – net

     2,404     2,272     4,134  

Foreign tax rates

     (72,552 )   (51,893 )   (35,767 )

Foreign earnings remitted to parent

     49,188     33,801     10,761  

Tax credits

     (3,200 )   (3,500 )   (3,590 )

Other – net

     (1,939 )   (10,176 )   (2,261 )
         

Total

   $ 300,158     239,670     237,408  
         

Foreign earnings remitted to parent includes estimated taxes provided on foreign sourced earnings remitted or expected to be remitted, net, to the parent company after considering financial and operational requirements of the parent and foreign affiliate.

The Other – net in 2005 includes the incremental income tax expense of $5,500 due to the repatriation of foreign earnings.

 

The components of the provisions for income taxes were:

 

      Current    Deferred     Total

2007

       

Federal

   $ 12,302    35,292     47,594

Foreign

     253,460    (7,766 )   245,694

State

     5,890    980     6,870
       

Total

   $ 271,652    28,506     300,158
       

2006

       

Federal

   $ 14,871    5,305     20,176

Foreign

     217,650    (4,927 )   212,723

State

     6,630    141     6,771
       

Total

   $ 239,151    519     239,670
       

2005

       

Federal

   $ 16,469    7,570     24,039

Foreign

     207,451    (1,275 )   206,176

State

     7,392    (199 )   7,193
       

Total

   $ 231,312    6,096     237,408
       

 

66    Delivering Aspirational Growth


 

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With certain exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2004. The Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” on January 1, 2007 with no material impact to the financial statements. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

 

      2007  

Balance at January 1

   $ 37,054  

Additions based on tax positions related to the current year

     13,938  

Additions for tax positions of prior years

     641  

Reduction for tax positions of prior years

     (2,397 )

Settlements

     (6,119 )

Foreign currency translation

     1,867  
   

Balance at December 31

   $ 44,984  
   

Approximately $30,700 of the total amount of unrecognized tax benefits at December 31, 2007 would affect the annual effective tax rate, if recognized. See Note 3 discussion of SFAS No. 141(R) for pending accounting rule changes. Further, the Company is unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense. The total amount of accrued interest and penalties at December 31, 2007 and 2006 was approximately $2,900.

 

The following table summarizes components of deferred tax assets and (liabilities) at December 31:

 

      2007     2006  

Accrued compensation, pension and post-retirement benefits

   $ 127,448     121,438  

Depreciation

     (37,352 )   (24,625 )

Goodwill and intangibles

     (75,727 )   (46,586 )

Accrued liabilities and other items — net

     (1,365 )   12,701  
   

Net deferred tax asset (liability)

   $ 13,004     62,928  
   

The following table summarizes the balance sheet classification of deferred tax assets and (liabilities) at December 31:

 

      2007     2006  

Deferred Tax Asset

    

Current

   $ 33,446     40,661  

Noncurrent

     25,526     36,480  

Deferred Tax Liability

    

Current

     (2,017 )   (1,511 )

Noncurrent

     (43,951 )   (12,702 )
   

Net deferred tax asset (liability)

   $ 13,004     62,928  
   

Applicable U.S. income and foreign withholding taxes have not been provided on approximately $958,600 of undistributed earnings of international associated companies at December 31, 2007. These earnings are considered to be permanently invested and, under certain tax laws, are not subject to taxes until distributed as dividends. Tax on such potential distributions would be substantially offset by foreign tax credits. If the earnings were not considered permanently invested, approximately $210,500 of deferred income taxes would need to be provided.


 

Wm. Wrigley Jr. Company 2007 Annual Report    67


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

14. OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) and comprehensive income as of and for the years ended December 31, 2007, 2006 and 2005 were as follows:

 

      Accumulated Other
Comprehensive Income (Loss)
    Comprehensive Income  

Balance December 31, 2004

   $    55,673    
   

Net earnings

     $    517,252  

Foreign currency translation adjustments, net of $1,767 tax expense

   (72,569 )   (72,569 )

Unrealized holding loss on marketable equity securities, net of $565 tax benefit

   (1,051 )   (1,051 )

Realized gain on donation of marketable equity securities, net of $4,807 tax benefit

   (8,928 )   (8,928 )

Loss on derivative contracts, net of $528 tax benefit

   (1,143 )   (1,143 )
        

Comprehensive income

     $    433,561  
   

Balance December 31, 2005

   $   (28,018 )  
   

Net earnings

     $    529,377  

Foreign currency translation adjustments, net of $49 tax expense

   77,596     77,596  

Loss on derivative contracts, net of $1,699 tax benefit

   (3,759 )   (3,759 )

Adjustment to initially apply SFAS No. 158, net of $53,709 tax benefit

   (110,485 )  
        

Comprehensive income

     $    603,214  
   

Balance December 31, 2006

   $   (64,666 )  
   

Net earnings

     $    632,005  

Foreign currency translation adjustments, net of $646 tax benefit

   156,374     156,374  

Gain on derivative contracts, net of $5,710 tax expense

   12,217     12,217  

Amortization and gains, net, from pension and post-retirement related unrealized losses, net of $3,923 tax expense

   6,059     6,059  
        

Comprehensive income

     $    806,655  
   

Balance December 31, 2007

   $    109,984    
   

On December 31, 2006, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” resulting in an adjustment to accumulated other comprehensive income (loss).

 

68    Delivering Aspirational Growth


 

The following table summarizes unrealized gains and (losses) recognized in accumulated other comprehensive income (loss) at December 31:

 

      2007     2006  

Foreign currency translation adjustment

   $ 206,337     49,963  

Gain (loss) on derivative contracts

     8,073     (4,144 )

Unrecognized pension and post-retirement losses

     (104,426 )   (110,485 )
   

Total

   $ 109,984     (64,666 )
   

15. PENSION AND OTHER POST-RETIREMENT PLANS

The Company maintains noncontributory defined benefit plans covering substantially all of its employees in the U.S. and in certain other countries. Retirement benefits are a function of years of service and the level of compensation generally for the highest three consecutive salary years occurring within ten years prior to an employee’s retirement date, depending on the plan. The Company’s policy is to fund within statutory limits and/or benefits earned to date. In the U.S., to the extent that an individual’s annual retirement benefit under the plan exceeds the limitations imposed by the Internal Revenue Code, as amended, and the regulations thereunder, such excess benefits may be paid from the Company’s nonqualified, unfunded, noncontributory supplemental retirement plan.

In addition, the Company maintains certain post-retirement plans, primarily in the U.S. but also in certain other countries, which provide limited health care benefits on a contributory basis and life insurance benefits. The costs of these post-retirement benefits are provided for during the employee’s active working career.

 

The following table summarizes assets and (liabilities) recognized in the Consolidated Balance Sheet at December 31:

 

      Pension     Post-retirement      Total  
      2007     2006     2007     2006      2007      2006  

Noncurrent assets

   $ 8,000     4,300     1,100     700      9,100      5,000  

Current liabilities

     (600 )   (400 )   (400 )   (400 )    (1,000 )    (800 )

Noncurrent liabilities

     (65,400 )   (60,200 )   (30,100 )   (29,300 )    (95,500 )    (89,500 )
   

Total

   $ (58,000 )   (56,300 )   (29,400 )   (29,000 )    (87,400 )    (85,300 )
   

The following table summarizes gains and (losses) net of tax recognized in accumulated other comprehensive income (loss) at December 31:

 

      Pension     Post-retirement      Total  
      2007     2006     2007     2006      2007      2006  

Net actuarial loss

   $ (91,493 )   (95,678 )   (11,169 )   (12,788 )    (102,662 )    (108,466 )

Prior service cost

     (3,839 )   (4,240 )   855     1,018      (2,984 )    (3,222 )

Transition asset

     1,220     1,203              1,220      1,203  
   

Total

   $ (94,112 )   (98,715 )   (10,314 )   (11,770 )    (104,426 )    (110,485 )
   

The estimated net actuarial losses, prior service costs and transition assets that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost (benefit) during 2008 are $4,300, $2,000 and ($200), respectively.


 

Wm. Wrigley Jr. Company 2007 Annual Report    69


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

Pension Plans

The funded status of the defined benefit plans was as follows:

 

        U.S. Plans      Non-U.S. Plans  
        2007      2006      2007      2006  

Change in Benefit Obligation

             

Benefit obligation at beginning of year

     $ 465,800      466,700      $ 301,300      238,300  

Service cost

       17,200      16,100        17,100      13,200  

Interest cost

       27,600      26,200        17,800      12,700  

Plan participants’ contributions

                   500      500  

Actuarial loss (gain)

       (16,800 )    (22,300 )      (7,100 )    20,500  

Foreign currency exchange

                   19,500      27,200  

Curtailment

       (1,900 )                 

Other

       500             33,400      400  

Benefits paid

       (23,300 )    (20,900 )      (13,700 )    (11,500 )
   

Benefit obligation at end of year

     $ 469,100      465,800      $ 368,800      301,300  
   

Change in Plan Assets

             

Fair value at beginning of year

       431,900      402,000        278,900      226,800  

Actual return on plan assets

       23,200      50,400        22,100      21,400  

Plan participants’ contributions

                   500      500  

Foreign currency exchange

                   17,800      25,800  

Employer contribution

       400      400        15,200      16,200  

Other

                   26,900      (300 )

Benefits paid

       (23,300 )    (20,900 )      (13,700 )    (11,500 )
   

Fair value at end of year

     $ 432,200      431,900      $ 347,700      278,900  
   

Funded status at end of year

     $ (36,900 )    (33,900 )    $ (21,100 )    (22,400 )
   

The total accumulated benefit obligation for the U.S. plans was $407,400 and $418,580 at December 31, 2007 and 2006, respectively. The total accumulated benefit obligation for the non-U.S. defined benefit pension plans was $290,100 and $265,600 at December 31, 2007 and 2006, respectively.

 

70    Delivering Aspirational Growth


 

The U.S. plans’ expected long-term rate of return on plan assets of 8.25% was based on the aggregate historical returns of the investments that comprise the U.S. defined benefit plan portfolio. The investment strategy of the U.S. plans in 2007 was to achieve an asset allocation balance within planned targets to obtain an average 8.25% annual return for the long-term.

The non-U.S. plans’ average expected long-term rate of return on plan assets was 6.5% and was based on the aggregate historical returns of the investments that comprise the particular non-U.S. defined benefit plan portfolios. The investment strategy of the non-U.S. plans in 2007 was to achieve asset allocation balances within planned targets to obtain average annual returns of 6.5% for the long-term.

The Company’s strategy is to fund its defined benefit plan obligations. The need for further contributions will be based on changes in the value of plan assets and the movements of interest rates during the year. The Company expects to contribute approximately $400 to the U.S. pension plans during 2008. The Company expects to contribute approximately $17,100 to the non-U.S. plans during 2008.

 

U.S. pension plan asset allocations by category at December 31, 2007 and 2006, and target allocations for 2008 are as follows:

 

Asset Category    Percentage
of Plan Assets
    Target
Allocation
 
      2007     2006     2008  

Equity securities

   60 %   65 %   55 – 65 %

Fixed income securities

   38 %   31 %   35 – 45 %

Real estate securities

   2 %   4 %   0 – 10 %
   

Total

   100 %   100 %   100 %
   

Non-U.S. pension plan asset allocations by category at December 31, 2007 and 2006, and target allocations for 2008 are as follows:

 

Asset Category    Percentage
of Plan Assets
   

Target

Allocation

 
      2007     2006     2008  

Equity securities

   51 %   48 %   50 – 65 %

Fixed income securities

   27 %   34 %   20 – 30 %

Real estate securities

   2 %   3 %   5 – 10 %

Other

   20 %   15 %   10 – 20 %
   

Total

   100 %   100 %   100 %
   

 

Wm. Wrigley Jr. Company 2007 Annual Report    71


Notes to Consolidated Financial Statements

Dollar and share amounts in thousands except per share figures

 

The components of net periodic benefit cost were as follows:

 

      U.S. Plans     Non-U.S. Plans  
      2007     2006     2005     2007      2006      2005  

Net periodic benefit cost:

              

Service cost

   $ 17,