UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the quarterly period
ended
June 30,
2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission
file number
1-800
WM. WRIGLEY JR. COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE
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36-1988190
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or organization)
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410 North Michigan Avenue
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Chicago, Illinois
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60611
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(Address of principal
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(Zip Code)
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executive offices)
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(Registrants telephone
number, including area code)
312-644-2121
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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
o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting Company. See definition of accelerated filer, large
accelerated filer and smaller reporting Company in Rule 12b-2 of the Securities Exchange Act (Check
one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the Registrant is a Shell Company (as defined in Rule 12b-2 of the
Securities and Exchange Act of 1934).
Yes
o
No
þ
218,664,257
shares of Common Stock and 54,043,124 shares of Class B Common Stock were outstanding as of July 31, 2008.
PART I FINANCIAL INFORMATION ITEM 1
WM. WRIGLEY JR. COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (CONDENSED)
(Unaudited)
(All amounts in thousands except for per share values)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2008
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2007
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2008
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2007
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Net sales
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$
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1,571,291
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1,377,780
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3,022,841
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2,631,826
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Cost of sales
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708,402
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644,547
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1,389,405
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1,237,442
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Restructuring charges
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4,486
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12,635
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Gross profit
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862,889
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728,747
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1,633,436
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1,381,749
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Selling, general and administrative expense
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564,976
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465,819
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1,065,951
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908,617
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Operating income
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297,913
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262,928
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567,485
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473,132
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Interest expense
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(16,072
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)
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(17,123
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)
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(31,293
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)
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(33,725
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)
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Investment income
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5,393
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2,537
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8,782
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4,427
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Other income (expense), net
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(2,277
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)
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1,421
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(12,077
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)
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18,124
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Earnings before income taxes
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284,957
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249,763
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532,897
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461,958
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Income taxes
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91,186
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79,950
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170,527
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149,444
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Net earnings
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$
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193,771
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169,813
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362,370
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312,514
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Net earnings per share of common stock (basic)
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$
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0.71
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0.62
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1.33
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1.13
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Net earnings per share
of common stock (diluted)
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$
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0.70
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0.61
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1.31
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1.13
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Dividends declared per share of common stock
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$
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0.335
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0.29
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0.67
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0.58
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Notes to financial statements beginning on page 5 are an integral part of these statements.
2
WM. WRIGLEY JR. COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONDENSED)
(Unaudited)
(All amounts in thousands)
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Six Months Ended
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June 30,
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2008
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2007
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OPERATING ACTIVITIES
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Net earnings
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$
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362,370
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312,514
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Adjustments to reconcile net earnings to net
cash provided by operating activities:
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Depreciation and amortization
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116,260
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101,868
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Net loss (gain) on retirements of property, plant and equipment
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8,450
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(13,735
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Non-cash share-based compensation
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27,899
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30,801
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Deferred income taxes
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6,157
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1,112
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(Increase) decrease in:
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Accounts receivable
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(39,085
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(22,222
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Inventories
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7,077
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43,575
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Other current assets
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(30,754
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(23,324
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Deferred charges and other assets
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(9,101
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(14,386
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Increase (decrease) in:
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Accounts payable and accrued expenses
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26,821
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(8,369
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Income and other taxes payable
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3,875
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18,083
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Other noncurrent liabilities
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24,081
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11,333
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Net cash provided by operating activities
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504,050
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437,250
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INVESTING ACTIVITIES
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Additions to property, plant and equipment
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(86,206
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(97,759
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Proceeds from retirements of property, plant and equipment
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3,261
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23,165
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Proceeds from sale of investments
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635
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685
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Acquisition, net of cash acquired
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(95,726
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(293,912
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Net cash used in investing activities
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(178,036
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(367,821
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FINANCING ACTIVITIES
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Dividends paid
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(170,486
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(150,371
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Common Stock purchased and issued, net
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(191,090
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(147,905
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Issuances of short-term debt, net
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130,000
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266,444
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Net cash used in financing activities
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(231,576
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(31,832
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Effect of exchange rate changes on cash and cash equivalents
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10,070
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3,440
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Net increase in cash and cash equivalents
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104,508
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41,037
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Cash and cash equivalents at beginning of period
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278,843
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253,666
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Cash and cash equivalents at end of period
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$
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383,351
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294,703
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SUPPLEMENTAL CASH FLOW INFORMATION
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Income taxes paid
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$
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161,485
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142,397
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Interest paid
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$
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24,835
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29,028
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Notes to financial statements beginning on page 5 are an integral part of these statements.
3
WM.
WRIGLEY JR. COMPANY
CONSOLIDATED BALANCE SHEET (CONDENSED)
(All amounts in thousands)
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(Unaudited)
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June 30, 2008
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December 31, 2007
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Assets
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Current assets:
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Cash and cash equivalents
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$
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383,351
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278,843
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Short-term investments, at amortized cost
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635
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Accounts receivable
(less allowance for doubtful
accounts: 6/30/08 - $5,880; 12/31/07 - $5,791)
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530,142
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469,221
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Inventories:
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Finished goods
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292,773
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280,712
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Raw materials, work in process and supplies
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333,040
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339,370
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625,813
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620,082
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Other current assets
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200,201
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180,997
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Total current assets
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1,739,507
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1,549,778
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Deferred charges and other assets
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222,293
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214,457
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Goodwill
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1,487,106
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1,422,957
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Other intangibles
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493,742
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484,256
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Property, plant and equipment, at cost
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3,033,384
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2,870,917
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Less accumulated depreciation
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(1,458,606
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(1,310,853
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Net property, plant and equipment
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1,574,778
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1,560,064
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Total assets
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$
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5,517,426
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5,231,512
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Liabilities and Stockholders Equity
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Current liabilities:
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Short-term debt
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$
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130,000
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Accounts payable and accrued expenses
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903,714
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871,901
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Dividends payable
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91,109
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79,965
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Income and other taxes payable
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155,155
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149,254
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Total current liabilities
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1,279,978
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1,101,120
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Other noncurrent liabilities
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334,022
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312,912
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Long term debt
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1,000,000
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1,000,000
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Total liabilities
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2,614,000
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2,414,032
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Stockholders equity:
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Preferred stock no par value
Authorized - 20,000 shares; Issued None
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Common Stock no par value
Authorized - 1,000,000 shares
Issued 233,036 and 231,579
shares at 6/30/08 and 12/31/07, respectively
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14,116
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14,084
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Class B Common Stock convertible
Authorized - 300,000 shares
Issued 57,515 and 58,972
shares at 6/30/08 and 12/31/07, respectively
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1,380
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1,412
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Additional paid-in capital
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160,215
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140,357
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Retained earnings
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3,445,959
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3,264,484
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Common Stock and Class B Common Stock in treasury, at cost -
18,133 and 15,176 shares at 6/30/08 and 12/31/07, respectively
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(895,473
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)
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(712,841
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Accumulated other comprehensive income
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177,229
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109,984
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Total stockholders equity
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2,903,426
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2,817,480
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Total liabilities and stockholders equity
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$
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5,517,426
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5,231,512
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Notes to financial statements beginning on page 5 are an integral part of these statements.
4
WM.
WRIGLEY JR. COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
(Unaudited)
(All amounts in thousands except for per share figures)
1. Basis of Presentation
The Consolidated Statement of Earnings (Condensed) for the three
months ended and six months ended June 30, 2008 and 2007, the
Consolidated Statement of Cash Flows (Condensed) for the six
months ended June 30, 2008 and 2007, and the Consolidated Balance
Sheet (Condensed) at June 30, 2008, are unaudited. In the
Companys opinion, the accompanying financial statements reflect
all normal and recurring adjustments necessary to present fairly
the results for the periods and have been prepared on a basis
consistent with the 2007 audited consolidated financial
statements. These Consolidated Financial Statements (Condensed)
should be read in conjunction with the 2007 audited consolidated
financial statements and related notes which are an integral part
thereof. Certain amounts recorded in 2007 have been reclassified
to conform to the 2008 presentation.
Conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions when preparing financial statements that affect
assets, liabilities, revenues and expenses. Actual results may
vary from those estimates.
2. Merger
On April 28, 2008, the Company announced that it had reached an
agreement to merge with Mars, Incorporated, one of the worlds
leading confectionery and consumer goods companies. As a result of
this transaction, Wrigley will become a private company. Mars,
Incorporated will acquire 100% of the outstanding stock of Wrigley
and has agreed to pay $80 per each share of the Companys Common
Stock and Class B Common Stock. The terms of the transaction have
been unanimously approved by the Wrigley Board of Directors. The
Company incurred merger related expenses, including investment
banking fees, legal fees and other such costs, of $16,788 in the
second quarter and first six months of 2008. On August 4, 2008
the Company filed with the SEC its definitive proxy statement in
connection with the Special Meeting of Stockholders scheduled for
September 25, 2008. At the Special Meeting, stockholders of
record as of July 28, 2008 will consider and vote upon the
adoption of the Agreement and Plan of Merger, dated as of
April 28, 2008, among the Company, Mars, Incorporated, New Uno
Holdings Corporation, and New Uno Acquisition Corporation.
3. Recently Issued Accounting Pronouncements
In March 2008, SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities -an amendment of FASB Statement
No. 133 was issued. SFAS No. 161 is intended to improve
transparency in financial reporting by requiring enhanced
disclosures of an entitys derivative instruments and hedging
activities and their effects on the entitys financial position,
financial performance and cash flows. SFAS 161 is effective for
the Companys fiscal year beginning 2009. The Company does not
expect a material impact to its financial position, earnings or
cash flows upon adoption.
4. 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, financing the acquisition through
short-term debt and cash on hand. Included in this purchase price
is $25,000 the Company paid in the second quarter of 2008 to A.
Korkunovs minority shareholders, due to the entity exceeding
certain performance targets in 2007. The Company also acquired an
incremental 10% interest in the second quarter of 2008 for an
additional $70,726, including direct acquisition costs, and
expects to acquire the final 10% interest in 2009. The results of
operations have been included since January 31, 2007.
5. 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 the fourth quarter of 2007, and held the Illinois property for sale at June
30, 2008; however, final sale will depend on certain activities, some of which are external and
beyond the Companys control.
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
5
restructuring charges in the Consolidated Statement of
Earnings (Condensed). The Company incurred a $4,486 charge in the second quarter of 2007,
including $4,138 in the North America segment with the remaining $348 in the All Other segment.
The Company incurred a $12,635 charge for the first six months of 2007, including $8,789 in the
North America segment with the remaining $3,846 in the All Other segment.
6. 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. At June 30, 2008, the Company had $130,000 of commercial paper outstanding under its
commercial paper program bearing an average interest rate of 2.22%.
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.
Also on July 14, 2005, the Company entered into an agreement for a $600,000 five-year 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 June 30, 2008, the Company was
compliant. The Company had no borrowings outstanding under the credit facility at June 30, 2008.
7. Fair Value of Financial Instruments
The Company adopted SFAS No. 157 Fair Value Measurements on January 1, 2008 for financial
assets and liabilities measured at fair value on a recurring basis. The Company has not adopted
SFAS No. 157 for nonfinancial assets and liabilities as permitted by FASB Staff Position FAS
157-2, which provided a deferral of such provisions until 2009. SFAS No. 157 defines fair value
as the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
SFAS No. 157 also establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The basis of fair value measurement in the three levels
of the fair value hierarchy, in order of priority, is described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly;
Level 3: Prices or valuation techniques that require inputs that are both significant to the
fair value measurement and unobservable; thus, reflecting assumptions about the market
participants.
Assets and liabilities recorded at fair value are valued using quoted market prices or under a
market approach using other relevant information generated by market transactions involving
identical or comparable instruments and included:
6
7. (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2008
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trusts holding deferred
compensation investments
|
|
$
|
127,282
|
|
|
|
|
|
|
|
|
|
|
|
127,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
127,282
|
|
|
|
|
|
|
|
|
|
|
|
127,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to deferred
compensation held in trusts
|
|
$
|
127,282
|
|
|
|
|
|
|
|
|
|
|
|
127,282
|
|
Foreign currency derivatives
|
|
|
|
|
|
|
8,231
|
|
|
|
|
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
127,282
|
|
|
|
8,231
|
|
|
|
|
|
|
|
135,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. 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. Diluted 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 are calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net earnings
|
|
$
|
193,771
|
|
|
|
169,813
|
|
|
|
362,370
|
|
|
|
312,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
272,010
|
|
|
|
274,961
|
|
|
|
272,612
|
|
|
|
275,490
|
|
Effect of dilutive securities stock options,
restricted stock and long-term stock grants
|
|
|
3,865
|
|
|
|
2,047
|
|
|
|
3,067
|
|
|
|
1,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares outstanding
|
|
|
275,875
|
|
|
|
277,008
|
|
|
|
275,679
|
|
|
|
277,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.71
|
|
|
|
0.62
|
|
|
|
1.33
|
|
|
|
1.13
|
|
Diluted
|
|
$
|
0.70
|
|
|
|
0.61
|
|
|
|
1.31
|
|
|
|
1.13
|
|
9. Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net earnings
|
|
$
|
193,771
|
|
|
|
169,813
|
|
|
|
362,370
|
|
|
|
312,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax
|
|
|
1,921
|
|
|
|
20,305
|
|
|
|
68,925
|
|
|
|
29,051
|
|
All other changes, net of tax
|
|
|
(4,885
|
)
|
|
|
5,801
|
|
|
|
(1,680
|
)
|
|
|
9,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
190,807
|
|
|
|
195,919
|
|
|
|
429,615
|
|
|
|
350,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
10. Pension and Other Post-retirement Benefit Plans
The following information provides the net periodic benefit costs for both the Companys U.S. and
non-U.S. pension and post-retirement plans, and an update on the total contributions paid and
expected to be paid during the current year to the Companys U.S. and non-U.S. pension and
post-retirement plans.
The components of net pension benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
5,300
|
|
|
|
3,700
|
|
|
|
4,200
|
|
|
|
4,200
|
|
Interest cost
|
|
|
7,300
|
|
|
|
6,900
|
|
|
|
5,400
|
|
|
|
4,100
|
|
Expected return on plan assets
|
|
|
(9,000
|
)
|
|
|
(9,100
|
)
|
|
|
(5,600
|
)
|
|
|
(4,800
|
)
|
Transition asset
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
(100
|
)
|
Prior service costs
|
|
|
500
|
|
|
|
500
|
|
|
|
100
|
|
|
|
100
|
|
Net actuarial loss
|
|
|
600
|
|
|
|
300
|
|
|
|
700
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension benefit cost
|
|
$
|
4,700
|
|
|
|
2,300
|
|
|
|
4,700
|
|
|
|
4,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
10,600
|
|
|
|
9,200
|
|
|
|
8,400
|
|
|
|
8,100
|
|
Interest cost
|
|
|
14,600
|
|
|
|
13,400
|
|
|
|
10,500
|
|
|
|
8,100
|
|
Expected return on plan assets
|
|
|
(18,000
|
)
|
|
|
(17,800
|
)
|
|
|
(11,100
|
)
|
|
|
(9,300
|
)
|
Transition asset
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Prior service costs
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
200
|
|
|
|
200
|
|
Net actuarial loss
|
|
|
1,200
|
|
|
|
600
|
|
|
|
1,300
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension benefit cost
|
|
$
|
9,400
|
|
|
|
6,400
|
|
|
|
9,100
|
|
|
|
8,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company disclosed in its financial statements for the year ended December 31, 2007 that it
expected to contribute approximately $400 to the U.S. pension plans in 2008. The Company
continues to anticipate funding approximately $400 for the U.S. pension plans in 2008. The
Company disclosed in its financial statements for the year ended December 31, 2007 that it
expected to contribute approximately $17,100 to the non-U.S. plans in 2008. The Company currently
anticipates funding approximately $13,400 to the non-U.S. plans in 2008. During the six months
ended June 30, 2008, the Company contributed $280 to the U.S. plans and $4,600 to the non-U.S.
plans.
8
10. (Continued)
The components of net post-retirement benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
800
|
|
|
|
900
|
|
|
|
1,600
|
|
|
|
1,800
|
|
Interest cost
|
|
|
1,100
|
|
|
|
1,300
|
|
|
|
2,200
|
|
|
|
2,100
|
|
Expected return on plan assets
|
|
|
(900
|
)
|
|
|
(1,000
|
)
|
|
|
(1,700
|
)
|
|
|
(1,600
|
)
|
Prior service costs
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Net actuarial loss
|
|
|
300
|
|
|
|
300
|
|
|
|
600
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net post-retirement benefit cost
|
|
$
|
1,200
|
|
|
|
1,400
|
|
|
|
2,500
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company previously disclosed in its financial statements for the year ended December 31, 2007
that it expected to contribute approximately $5,200 to the post-retirement plans in 2008. The
Company continues to anticipate funding approximately $5,200 to the post-retirement plans in 2008.
During the six months ended June 30, 2008, the Company contributed $2,600 to the post-retirement
plans.
11. Segment Information
Management organizes the Companys chewing gum and other confectionery businesses principally
along geographic regions. The operating geographic regions below have been revised as of the
first quarter of 2008 to reflect the Companys current management and reporting structure. In
2008, the Company moved the Pacific and Latin America regions from their previous Other
Geographic Regions segment into Asia/Pacific and All Other, respectively. The tables below
summarize the net sales and operating income for the current segment presentation.
Descriptions of the Companys reportable segments are as follows:
|
|
|
North America These operations manufacture and market gum and other confectionery
products in the U.S. and Canada. The U.S. accounts for approximately 90% of North
Americas net sales in all periods.
|
|
|
|
|
EMEAI These operations, which include two operating segments, West Europe and East/South
Europe, that have been aggregated into a single reporting segment due to similar economic
characteristics, products and customer and distribution types, manufacture and market gum
and other confectionery products principally in Europe as well as in the Middle East, Africa
and India.
|
|
|
|
|
Asia/Pacific These operations manufacture and market gum and other confectionery
products in a number of Asian and Pacific region geographies including China, Taiwan, the
Philippines and Australia.
|
|
|
|
|
All Other These operations manufacture gum base, manufacture and market gum and other
confectionary products in Latin America and include corporate expenses such as costs related
to research and development, information systems and certain administrative functions.
|
9
11. (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Net Sales
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
North America
|
|
$
|
474,475
|
|
|
|
452,110
|
|
|
|
907,666
|
|
|
|
866,097
|
|
EMEAI
|
|
|
782,578
|
|
|
|
671,451
|
|
|
|
1,461,666
|
|
|
|
1,237,158
|
|
Asia/ Pacific
|
|
|
290,238
|
|
|
|
231,601
|
|
|
|
607,685
|
|
|
|
485,666
|
|
All Other
|
|
|
24,000
|
|
|
|
22,618
|
|
|
|
45,824
|
|
|
|
42,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,571,291
|
|
|
|
1,377,780
|
|
|
|
3,022,841
|
|
|
|
2,631,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Operating Income
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
North America
|
|
$
|
114,506
|
|
|
|
95,520
|
|
|
|
200,449
|
|
|
|
171,634
|
|
EMEAI
|
|
|
206,930
|
|
|
|
189,177
|
|
|
|
362,122
|
|
|
|
329,052
|
|
Asia/Pacific
|
|
|
79,170
|
|
|
|
63,466
|
|
|
|
175,122
|
|
|
|
137,091
|
|
All Other
|
|
|
(102,693
|
)
|
|
|
(85,235
|
)
|
|
|
(170,208
|
)
|
|
|
(164,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
297,913
|
|
|
|
262,928
|
|
|
|
567,485
|
|
|
|
473,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
PART I FINANCIAL INFORMATION ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(All amounts in thousands except for per share figures)
RESULTS OF OPERATIONS
Overview
The Wm. Wrigley Jr. Company (the Company or Wrigley) achieved 15% growth in diluted earnings per
share in the second quarter of 2008 compared to the second quarter of 2007. Diluted earnings per
share increased to $0.70 in the second quarter of 2008 compared to $0.61 in the second quarter of
2007, due to earnings growth across all segments, a $0.08 per share favorable impact from foreign
exchange and a $0.01 per share favorable impact due to restructuring charges in the prior period,
partially offset by a $0.04 unfavorable impact related to expenses associated with the planned
merger with Mars.
The Company achieved 16% growth in diluted earnings per share in the first six months of 2008
compared to the first six months of 2007. Diluted earnings per share increased to $1.31 in the
first six months of 2008 compared to $1.13 in the first six months of 2007, due to earnings growth
across all segments, a $0.15 per share favorable impact from foreign exchange, a $0.03 per share
favorable impact due to restructuring charges in the prior period, partially offset by a $0.03
unfavorable impact due to a gain on the sale of corporate assets in the prior period and a $0.04
unfavorable impact related to expenses associated with the planned merger with Mars. Additionally,
the Companys effective tax rate decreased to 32.0% from 32.4% in the first six months of 2007.
The Company expects a slightly lower tax rate compared to 2007 to continue through 2008.
Net sales increased 14% and 15% in the second quarter and first six months of 2008, respectively,
driven primarily by average translation of foreign currencies and price/mix. Net sales growth was
particularly strong in Asia/Pacific and EMEAI, led by double digit volume growth in China and
Russia, respectively. Net sales in North America increased moderately despite declines in U.S.
volume.
Average foreign currency translation favorably impacted diluted earnings per share in the second
quarter and first six months of 2008 compared to the respective periods in 2007. This benefit was
primarily due to average translation rates of stronger foreign currencies, particularly the euro,
Polish zloty, Chinese renminbi, Russian ruble 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.
The operating geographic regions below have been revised as of the first quarter of 2008 to reflect
the Companys current management and reporting structure. In 2008, the Company moved the Pacific
and Latin America regions from their previous Other Geographic Regions segment into Asia/Pacific
and All Other, respectively.
On April 28, 2008, the Company announced that it had reached an agreement to merge with Mars,
Incorporated, one of the worlds leading confectionery and consumer goods companies. As a result of
this transaction, Wrigley will become a private company. Mars, Incorporated will acquire 100% of
the outstanding stock of Wrigley and has agreed to pay $80 per each share of the Companys Common
Stock and Class B Common Stock. The terms of the transaction have been unanimously approved by the
Wrigley Board of Directors. The Company incurred merger related expenses, including investment
banking fees, legal fees and other such costs, of $16,788 in the second quarter and first six
months of 2008.
2008 vs. 2007 Second Quarter
Net Sales
Consolidated net sales for the second quarter of 2008 were $1,571,291, an increase of $193,511 or
14% from the second quarter of 2007. Volume growth increased net sales 1% and price/mix increased
net sales 5%. Average translation of stronger foreign currencies to the weaker U.S. dollar
increased net sales approximately 8%.
North America net sales for the second quarter of 2008 were $474,475, an increase of $22,365 or 5%
from the second quarter of 2007. Favorable price/mix increased net sales 9% due to pricing
increases phased in across the product portfolio beginning late in the second quarter of 2007.
Volume declines, primarily due to U.S. nongum products, decreased net sales 5%. Average
translation of the stronger Canadian dollar to the weaker U.S. dollar increased net sales
approximately 1%.
EMEAI net sales for the second quarter of 2008 were $782,578, an increase of $111,127 or 17% from
the second quarter of 2007. Volume growth increased net sales 1%, primarily due to higher volume in
Russia, partially offset by lower volume in the U.K. and Spain. Favorable
11
price/mix increased net sales 4%. Average translation of stronger European
currencies, primarily the Russian ruble, euro and the Polish zloty, to the weaker U.S. dollar
increased net sales approximately 12%.
Asia/Pacific net sales for the second quarter of 2008 were $290,238, an increase of $58,637 or 25%
from the second quarter of 2007. Volume growth increased net sales 12%, primarily led by China,
where the Extra
®
and Doublemint
®
brands drove growth, and Australia and Vietnam. Favorable
price/mix increased net sales 1%. Average translation, primarily from a stronger Chinese renminbi
and Australian dollar to the weaker U.S. dollar, increased net sales approximately 12%.
Operating Income
The following table presents components of operating income as a percentage of net sales. Other
expense reported in merchandising and promotion includes brand research and royalty fees.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Gross profit
|
|
|
54.9
|
%
|
|
|
52.9
|
%
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
(11.5
|
)
|
|
|
(10.7
|
)
|
Merchandising and promotion/other
|
|
|
(5.8
|
)
|
|
|
(4.6
|
)
|
Selling and other marketing
|
|
|
(9.8
|
)
|
|
|
(10.2
|
)
|
General and administrative
|
|
|
(8.8
|
)
|
|
|
(8.3
|
)
|
|
|
|
|
|
|
|
Total selling, general and administrative*
|
|
|
(36.0
|
)
|
|
|
(33.8
|
)
|
|
|
|
|
|
|
|
Operating income*
|
|
|
19.0
|
%
|
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
*
|
|
May not total due to rounding
|
Consolidated operating income for the second quarter of 2008 increased $34,985 or 13% compared to
the second quarter of 2007. Average translation of stronger foreign currencies to the weaker U.S.
dollar increased operating income approximately 12%. Gross profit increased $134,142 or 18% from
2007 due to increased net sales while gross profit as a percentage of sales (gross profit margin)
increased 2.0 percentage point primarily due to favorable price/mix combined with restructuring
charges in the prior quarter, partially offset by slightly unfavorable cost in the quarter.
Average translation of stronger foreign currencies increased gross profit approximately 9%.
Selling, general and administrative (SG&A) expense increased $99,157 or 21% from 2007, primarily
due to increased advertising and merchandising and promotion. In addition, the second quarter of
2008 also included merger expenses of $16,788. Average translation of foreign currencies to the
U.S. dollar increased SG&A expense approximately 7%.
North America operating income for the second quarter of 2008 increased $18,986 or 20% compared to
the second quarter of 2007. Average translation of the Canadian dollar to the weaker U.S. dollar
increased operating income approximately 1%. Gross profit increased $29,462 or 14% from 2007 due
to higher gross profit margin and increased net sales. Average translation of the Canadian dollar
to the U.S. dollar increased gross profit approximately 1%. Gross profit margin increased 4.0
percentage points compared to the prior period primarily due to favorable price/mix and
restructuring charges in the prior quarter. SG&A expense increased $10,476 or 9% primarily due to
higher advertising, merchandising and promotion (brand support) partially offset by lower general
and administrative expense. Average translation of the Canadian dollar to the U.S. dollar
increased SG&A expense approximately 1%.
EMEAI operating income for the second quarter of 2008 increased $17,753 or 9% compared to the
second quarter of 2007. Average translation of foreign currencies to the U.S. dollar increased
operating income approximately 12%. Gross profit increased $69,603 or 18% from 2007 primarily due
to increased net sales and gross profit margin. Average translation of foreign currencies to the
U.S. dollar increased gross profit approximately 13%. Gross profit margin increased 0.5 percentage
points compared to the second quarter of 2007 primarily due to favorable price, partially offset by
higher cost and unfavorable mix. SG&A expense increased $51,850 or 25% primarily due to average
foreign currency translation, increased brand support and selling expense. Average translation of
foreign currencies to the U.S. dollar increased SG&A expense approximately 14%.
Asia/Pacific operating income for the second quarter of 2008 increased $15,704 or 25% compared to
the second quarter of 2007. Average translation of the stronger Chinese renminbi and Australian
dollar to the weaker U.S. dollar increased operating income approximately 14%. Gross profit
increased $37,782 or 30% from 2007 primarily due to increased net sales and higher gross profit
margin. Average translation of stronger foreign currencies increased gross profit approximately
12%. Gross profit margin increased 2.0 percentage points primarily due to favorable cost and
price/mix. SG&A expense increased $22,078 or 36% primarily due to increased brand support and
selling expenses. Average translation of foreign currencies to the U.S. dollar increased SG&A
expense approximately 10%.
12
All Other operating expense for the second quarter of 2008 increased $17,458 or 21% compared to the
second quarter of 2007. The increase was primarily due to merger expenses, partially offset by
lower central marketing expenses including global marketing, due to the marketing realignment in
the fourth quarter of 2007 and restructuring charges in the second quarter of 2007.
Interest Expense
Interest expense for the second quarter of 2008 was $16,072, down $1,051 compared to the second
quarter of 2007 due to a decrease in short-term interest rates, partially offset by a slight
increase in the average commercial paper balances outstanding during the second quarter of 2008
compared to the second quarter of 2007.
Investment Income
Investment income for the second quarter of 2008 was $5,393, up $2,856 compared to the second
quarter of 2007. The increase was primarily due to higher average cash balances and higher
international investment yields during the second quarter of 2008.
Other Income (Expense), Net
Other income (expense), net for the second quarter of 2008 was $2,277 of expense, compared to
$1,421 of income in the second quarter of 2007. The change was primarily due to a foreign currency
transaction gain in the second quarter of 2007.
Income Taxes
Income taxes for the second quarter of 2008 were $91,186, up $11,236 or 14% from the second quarter
of 2007. The increase was primarily due to the increase in pretax earnings as the effective tax
rate remained consistent at 32.0% between periods.
2008 vs. 2007 First Six Months
Net Sales
Consolidated net sales for the first six months of 2008 were $3,022,841, an increase of $391,015 or
15% from the first six months of 2007. Volume growth increased net sales 1% and price/mix increased
net sales 6%. Average translation of stronger foreign currencies to the weaker U.S. dollar
increased net sales approximately 8%.
North America net sales for the first six months of 2008 were $907,666, an increase of $41,569 or
5% from the first six months of 2007. Favorable price/mix increased net sales 11% due to pricing
increases phased in across the product portfolio beginning late in the second quarter of 2007.
Volume declines, primarily due to U.S. nongum products, decreased net sales 7%. Average
translation of the stronger Canadian dollar to the weaker U.S. dollar increased net sales
approximately 1%.
EMEAI net sales for the first six months of 2008 were $1,461,666, an increase of $224,508 or 18%
from the first six months of 2007. Volume growth increased net sales 2%, primarily due to higher
volume in Russia and India, partially offset by lower volume in the U.K. and France. Favorable
price/mix increased net sales 4%. Average translation of stronger European currencies, primarily
the Russian ruble, euro and the Polish zloty, to the weaker U.S. dollar increased net sales
approximately 12%.
Asia/Pacific net sales for the first six months of 2008 were $607,685, an increase of $122,019 or
25% from the first six months of 2007. Volume growth increased net sales 12%, primarily led by
China, where the Extra and Doublemint brands drove growth, and Australia and Vietnam. Favorable
price/mix increased net sales 2%. Average translation of a stronger Chinese renminbi and Australian
dollar to the weaker U.S. dollar increased net sales approximately 11%.
13
Operating Income
The following table presents components of operating income as a percentage of net sales. Other
expense reported in merchandising and promotion includes brand research and royalty fees.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Gross profit
|
|
|
54.0
|
%
|
|
|
52.5
|
%
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
(11.8
|
)
|
|
|
(10.6
|
)
|
Merchandising and promotion/other
|
|
|
(5.3
|
)
|
|
|
(5.1
|
)
|
Selling and other marketing
|
|
|
(10.0
|
)
|
|
|
(10.3
|
)
|
General and administrative
|
|
|
(8.2
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
Total selling, general and administrative*
|
|
|
(35.3
|
)
|
|
|
(34.5
|
)
|
|
|
|
|
|
|
|
Operating income*
|
|
|
18.8
|
%
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
*
|
|
May not total due to rounding
|
Consolidated operating income for the first six months of 2008 increased $94,353 or 20% compared to
the first six months of 2007. Average translation of stronger foreign currencies to the weaker U.S.
dollar increased operating income approximately 13%. Gross profit increased $251,687 or 18% from
2007 due to increased net sales while gross profit as a percentage of sales (gross profit margin)
increased 1.5 percentage points primarily due to favorable price/mix combined with restructuring
charges in the prior year, partially offset by slightly higher cost. Average translation of
stronger foreign currencies increased gross profit approximately 9%. SG&A expense increased
$157,334 or 17% from 2007, primarily due to increased advertising and selling expense. In addition,
the first six months of 2008 also included $16,788 of merger expenses. Average translation of
foreign currencies to the U.S. dollar increased SG&A expense approximately 7%.
North America operating income for the first six months of 2008 increased $28,815 or 17% compared
to the first six months of 2007. Average translation of the Canadian dollar to the weaker U.S.
dollar increased operating income approximately 1%. Gross profit increased $56,848 or 14% from
2007 due to higher gross profit margin and increased net sales. Average translation of the Canadian
dollar to the U.S. dollar increased gross profit approximately 1%. Gross profit margin increased
4.1 percentage points compared to the prior period primarily due to favorable price/mix and
restructuring charges in the prior quarter, partially offset by higher cost. SG&A expense increased
$28,033 or 12% primarily due to advertising and merchandising and promotion (brand support).
Average translation of the Canadian dollar to the U.S. dollar increased SG&A expense approximately
1%.
EMEAI operating income for the first six months of 2008 increased $33,070 or 10% compared to the
first six months of 2007. Average translation of foreign currencies to the U.S. dollar increased
operating income approximately 13%. Gross profit increased $117,230 or 16% from 2007 primarily due
to increased net sales, partially offset by lower gross profit margin. Average translation of
foreign currencies to the U.S. dollar increased gross profit approximately 12%. Gross profit margin
decreased 1.1 percentage points compared to the first six months of 2007 primarily due to
unfavorable mix and cost, partially offset by favorable price. SG&A expense increased $84,160 or
21% primarily due to average foreign currency translation and increased brand support and selling
expense. Average translation of foreign currencies to the U.S. dollar increased SG&A expense
approximately 12%.
Asia/Pacific operating income for the first six months of 2008 increased $38,031 or 28% compared to
the first six months of 2007. Average translation of the stronger Chinese renminbi and Australian
dollar to the weaker U.S. dollar increased operating income approximately 14%. Gross profit
increased $78,792 or 30% from 2007 primarily due to increased net sales and higher gross profit
margin. Average translation of stronger foreign currencies increased gross profit approximately
11%. Gross profit margin increased 2.0 percentage points primarily due to favorable cost and
price, partially offset by unfavorable mix. SG&A expense increased $40,761 or 32% primarily due to
increased brand support and average foreign currency translation. Average translation of foreign
currencies to the U.S. dollar increased SG&A expense approximately 8%.
All Other operating expense for the first six months of 2008 increased $5,563 or 3% compared to the
first six months of 2007. The increase was primarily due to merger expenses, partially offset by
lower central marketing expenses including global marketing, due to the marketing realignment in
the fourth quarter of 2007 and restructuring charges in the first six months of 2007.
Interest Expense
Interest expense for the first six months of 2008 was $31,293, down $2,432 compared to the first
six months of 2007 due to lower average commercial paper balances outstanding during the first six
months of 2008, primarily due to the A. Korkunov acquisition in the prior year, and a decrease in
short-term interest rates.
14
Investment Income
Investment income for the first six months of 2008 was $8,782, up $4,355 compared to the first six
months of 2007. The increase was primarily due to higher average cash balances and higher
international investment yields during the first six months of 2008.
Other Income (Expense), Net
Other income (expense), net for the first six months of 2008 was $12,077 of expense, compared to
$18,124 of income in the first six months of 2007. The change was primarily due to an approximately
$14,000 gain on the sale of corporate assets in the prior period and foreign currency transaction
losses in the first six months of 2008.
Income Taxes
Income taxes for the first six months of 2008 were $170,527, up $21,083 or 14% from the first six
months of 2007. The increase was primarily due to the increase in pretax earnings of $70,939 or 15%
partially offset by a decrease in the effective tax rate. The consolidated effective tax rate
decreased to 32.0% in the first six months of 2008 compared to 32.4% in the first six months of
2007 mainly due to geographic earnings mix.
LIQUIDITY AND CAPITAL RESOURCES
Operating Cash Flow and Current Ratio
Net cash provided by operating activities for the first six months of 2008 was $504,050 compared to
$437,250 for the same period in 2007. The increase was primarily due to increased earnings. The
Companys current ratio (current assets divided by current liabilities) was approximately 1.4 to 1
at June 30, 2008 and December 31, 2007.
Additions to Property, Plant, and Equipment
Capital expenditures for the first six months of 2008 were $86,206 compared to $97,759 in the first
six months of 2007. The decrease was primarily due to timing as the Company expects additions to
property, plant and equipment in 2008 will be somewhat higher than 2007. The Company plans to fund
additions from cash flow from operations.
The Company closed on the acquisition of an additional 10% interest in A. Korkunov in the second
quarter of 2008. The cost of this 10% interest, as well as the final 10% interest expected to be
acquired in 2009, was based on an earnings multiple that depends upon A. Korkunovs fiscal year
financial performance in the year immediately prior to closing compared to agreed upon targets.
The cost of the 10% interest acquired in the second quarter of 2008 was $70,726, including direct
acquisition costs. Additionally, as an adjustment to the initial closing and acquisition of the
80% interest in January 2007, the Company also paid, in the second quarter of 2008, an additional
$25,000, due to A. Korkunov exceeding an agreed upon financial target for fiscal year 2007. Thus,
the Companys total cash outlay related to the A. Korkunov acquisition was $95,726 in the second
quarter of 2008.
Borrowing Arrangements and External Capital Resources
At June 30, 2008, the Company had $130,000 of commercial paper outstanding under its commercial
paper program bearing an average interest rate of 2.22% 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 remaining 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 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 June 30,
2008, the Company was compliant. The Company had no borrowings outstanding under the credit
facility at June 30, 2008.
15
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 II, Item 1A) and those listed from
time to time in the Companys 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 3 Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Inherent in the Companys operations are certain market risks related to foreign currency exchange
rates, interest rates, and the equity markets. The Companys primary area of market risk is foreign
currency exchange rate risk. The Company identifies this risk and mitigates its financial impact
through its corporate policies and hedging activities. The Companys 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. The Company believes that movements in
market values of financial instruments used to mitigate identified risks are not expected to have a
material near-term impact on future earnings, cash flows, or reported fair values. The Companys
exposure to interest rate risk on the Companys long-term debt is mitigated because it carries a
fixed coupon rate of interest. There have been no material changes to the Companys exposure to
market risks since December 31, 2007. The Companys exposure to equity price risk would not have a
significant impact on future earnings, fair value or cash flows.
Item 4 Controls and Procedures
(i) Disclosure Controls and Procedures
The Companys Chief Executive Officer and Chief Financial Officer conducted an evaluation of the
effectiveness of the Companys disclosure controls and procedures as of June 30, 2008. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective as of June 30, 2008.
(ii) Changes in Internal Control Over Financial Reporting
There was no change in the Companys internal control over financial reporting during the period
ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
16
PART II OTHER INFORMATION
Item 1A Risk Factors
The Companys operations and financial results are subject to a number of risks and uncertainties
that could adversely affect the Companys 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 market leadership in the gum segment, the Companys ability to retain preferred
retail space allocation will impact results. If the Company is not able to retain this
allocation, the Companys 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 Companys results could be
negatively impacted.
|
|
|
Changes in demographics and consumer preferences.
The Company operates in an
increasingly competitive industry. As such, the Companys 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
Companys 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 Companys
operating results.
|
|
|
Changes in foreign currency and market conditions.
Manufacturing and sales of a
significant portion of the Companys 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 Companys business in
such countries could be negatively impacted. In addition, given the global nature of the
Companys business, the Company earns revenue, pays expenses, incurs liabilities and holds
assets in a variety of foreign currencies which are translated into U.S. dollars for
financial statement reporting purposes at the then applicable exchange rate.
Consequently, volatility in foreign currencies could have a material adverse effect on the
Companys 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 Companys 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 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 Companys 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 Companys 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 Companys inability to
successfully integrate any acquired businesses or assets could cause actual results to
differ from anticipated results or expectations of the business.
|
|
|
Merger.
On April 28, 2008, the Company announced that it had reached an
agreement to merge with Mars, Incorporated, one of the worlds leading confectionery and
consumer goods companies. To the extent the transaction is not consummated for any reason,
our stock price may be adversely affected. In addition, inability to retain our key
personnel during this period may have a material adverse effect on our operations and our
financial results. Other related risks that could have a material adverse effect on our
financial results include, without limitation: (a) the outcome of any legal proceedings
which may be instituted against the Company and (b) risks that the proposed transaction
disrupts current plans and operations.
|
17
Additional significant factors that may affect the Companys operations, performance, development
and business results include the risks and uncertainties described above, those listed from time to
time in the Companys 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 above are believed to be significant factors, but not necessarily all of the
significant factors, that could cause actual results to differ materially. Unpredictable or unknown
factors could also have material effects on the Company.
Item 6 Exhibits
(a)
|
|
Exhibits reference is made to the Exhibit Index on page 20.
|
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
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WM. WRIGLEY JR. COMPANY
(Registrant)
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By
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/s/ SHAUN MARA
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Shaun Mara
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Vice President and Controller
Authorized Signatory and Chief Accounting Officer
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Date August 5, 2008
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WM. WRIGLEY JR. COMPANY AND WHOLLY OWNED ASSOCIATED COMPANIES
INDEX TO EXHIBITS
(Part II Item 6)
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Exhibit
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Number
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Description of Exhibit
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2.
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Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
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(a)
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Agreement and Plan of Merger, dated April 28, 2008, among Wm. Wrigley Jr. Company, Mars,
Incorporated, New Uno Holdings Corporation and New Uno Acquisition Corporation (incorporated by
reference from Exhibit 2.1 to the Current Report on Form 8-K filed on April 30, 2008).
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4.
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Instruments Defining the Rights of Security Holders
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(a)
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Amendment to Rights Agreement, dated April 27, 2008, by and between Wm. Wrigley Jr.
Company and ComputerShare Trust Company N.A. (as successor to EquiServe, L.P.), as Rights Agent,
dated June 1, 2001 (incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K
filed on April 30, 2008).
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10.
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Material Contracts
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(a)*
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Amendment to Wm. Wrigley Jr. Company Executive Compensation Deferral Program effective
July 1, 2008.
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(b)*
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Amendment to Wm. Wrigley Jr. Company Stock Award Program effective July 1, 2008.
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31.
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Rule 13a-14(a)/15d-14(a) Certification of:
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(a)*
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Mr. William D. Perez, President and Chief Executive Officer; and
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(b)*
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Mr. Reuben Gamoran, Senior Vice President and Chief Financial Officer.
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32.
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Section 1350 Certification of:
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(a)*
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Mr. William D. Perez, President and Chief Executive Officer; and
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(b)*
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Mr. Reuben Gamoran, Senior Vice President and Chief Financial Officer.
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*
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Indicates that such document is filed herewith.
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