Wrigley Brands
WM. WRIGLEY JR. COMPANY | 2002 ANNUAL REPORT . . . woven into the fabric of everyday life around the world Building Brands. For more than
a century, the Wrigley Company has been defined by
its brands. This iconic portfolio has brought fun, flavor
and quality to millions of consumers across the globe
for generations. Today, the personalities of Wrigley
brands have never been more vibrant. In the U.S.,
long-standing favorites including Wrigley’s Spearmint,
Doublemint and Juicy Fruit have been recreated with
longer-lasting taste and bold new packaging to ensure
that they will remain a vital part of the confectionery CONTENTS landscape for generations to come. More recently
Financial Highlights 3 introduced Wrigley confections like Eclipse Flash President’s Letter 4
Management’s Discussion and Analysis 14 strips and Orbit Drops are delivering great benefits
Quarterly Data 20 and taste in forms completely new to Wrigley. These Selected Financial Data 22
Report of Management and non-gum brands help further define Wrigley as an Report of Independent Auditors 24
Consolidated Statement of Earnings 25 innovator in confections and an expert in delivering
Consolidated Balance Sheet 26 what consumers want – whether its dental benefits, Consolidated Statement of Cash Flows 28
Consolidated Statement of fresh breath, throat soothing, or just great taste. Stockholders’ Equity 29
Accounting Policies and Notes to Consolidated Financial Statements 30
Elected Officers 39
Board of Directors 40
Stockholder Information 41
Corporate Facilities and Principal Associated Companies 43
Wrigley Brands 44 FINANCIAL HIGHLIGHTS
In thousands of dollars except per share amounts
2002 2001
Net Sales $ 2,746,318 $ 2,401,419
Net Earnings $ 401,525 $ 362,986
– Per Share of Common Stock (basic and diluted) $ 1.78 $ 1.61
Dividends Paid $ 181,232 $ 167,922
– Per Share of Common Stock $ .805 $ .745
Additions to Property, Plant and Equipment $ 216,872 $ 181,760
Stockholders' Equity $ 1,522,576 $ 1,276,197
Return on Average Equity 28.7 % 30.1 %
Stockholders of Record at Close of Year 40,534 38,701
Average Shares Outstanding (000) 225,145 225,349
For additional historical financial data see page 22.
3 TO OUR STOCKHOLDERS AND THE WORLDWIDE WRIGLEY TEAM:
Two thousand and two was a very successful year for your Company, as we achieved record levels of product shipments, sales and earnings worldwide. These gains were made against a backdrop of economic and political uncertainty in a number of geographies as well as a shifting competitive landscape within our industry.
It is during unsettled times like these that the clarity and consistency of our vision, mission, values and strategies are particularly important. Equally essential are the unique talents of our team and their ability to work together seamlessly to execute our plans in the global marketplace. All of this enables us to stand out against the competition and continue to build shareholder value.
There have been notable changes within the chewing gum business and the broader confectionery industry that will continue to impact the Wrigley Company. Acceleration of sales growth for chewing gum in recent years, largely due to our new product initiatives, has attracted attention and spurred activity. New players are entering our core business and various competitive brands have been changing hands. Notably, Cadbury has been adding chewing gum companies to its portfolio and within the last year, acquired Dandy (a Danish gum maker and our principal competitor in Russia) and agreed to purchase Adams confectionery (our nearest competitor in the United States).
Given the new field of play, it is more important than ever to reiterate the commitment present at every level of our organization to executing against our six core strategic choices:
– Boosting our core business
– Expanding our business into new geographies and distribution channels – Diversifying close to home remaining dedicated to doing what is right for our business and for our stakeholders. We will be driven – Maintaining a focus on innovation to create significant value, seeking a tight fit with our – Delivering the highest quality at the lowest cost core competencies, our strategic long-term plan and
– Growing and developing our people our Company values and focusing on potential growth synergies as opposed to just cost synergies. Although all six remain critical, three played especially The path to our successful future will never be set significant roles in 2002 – diversification, core business in stone – we must remain flexible and continue to expansion and innovation – and so it is worthwhile to explore multiple strategies and parallel initiatives to discuss them in more detail and to understand their give ourselves the best possibility of achieving robust, importance for our continued success. generational growth. Were we disappointed that the This past year, we executed against our strategic choice Wrigley-Hershey combination did not come together to “diversify close to home” by pursuing a business as planned? Absolutely. Did it prevent us from making combination with Hershey Foods. While the Wrigley- substantial progress in 2002? Absolutely not. Even if the Hershey transaction did not take place, it is important to right acquisition opportunity does not present itself, we share with you key considerations that speak to our will move forward confident in the knowledge that our merger and acquisition philosophy and how these core business is healthy and growing, as evidenced by the principles will remain a steadfast component of our significant organic growth generated by our internally approach to similar opportunities in the future. developed line extensions and new confectionery items.
Our motivation was pure and simple – it was a unique Turning to our core business expansion, a key competi- opportunity that made good business sense on many tive advantage for the Wrigley Company and central to levels, and we had the talent and resources to fully our success is our portfolio of iconic brands, trusted by capitalize on it and deliver results. Our due diligence, our consumers around the world. Some have been around offer and our plans for the integrated organization were for more than a century, while others have yet to reach thorough, thoughtful, strategic, and extremely well- their first anniversary. Though different in form, taste executed. Our detailed analysis reinforced the tremendous and function, they are all grounded in deep synergies, consumer growth opportunities and value consumer understanding and deliver quality, value creation inherent in the envisioned combination of our and meaningful consumer benefits. This past year saw companies. Additionally, the many similarities in heritage, a significant increase in our already strong levels of culture and values, and the complementary nature of the marketing investment in our brands – both new and old respective product lines, iconic brands and geographic – with impressive sales results. strengths, made this potential transaction very attractive. In the U.S., three of our longest established brands – As with any such bold business move, there was risk Wrigley’s Spearmint®, Doublemint® and Juicy Fruit® – were involved; but measured risk-taking is one of the Wrigley modified with improved formulas, updated packaging, Company’s key values and is necessary to grow the business. and new marketing campaigns intended to grab people’s Going forward, we reaffirm our intention to pursue attention and satisfy the next generation of Wrigley confectionery acquisitions around the world, while consumers. Change of this magnitude is often difficult,
5 and we recognize that it may be disconcerting for some past year, we took some major steps forward in our longstanding consumers; however, ensuring the vitality ongoing implementation of global enterprise software, of our brands requires their thoughtful evolution and including the conversion of our operations in Western renewal – a delicate blending of past, present and future. Europe and the Americas. As of this time, over 60% of the
worldwide Wrigley organization is operating on a unified These initiatives – along with our support of the vigorous systems platform. This could not have been achieved growth of Orbit® and Eclipse® in the U.S., the continuing without the tremendous effort and dedication of our expansion of our international Airwaves brand franchise, people across a number of functions and regions who are and the introduction of a new product format with single-minded in their determination to use technology X•Cite™ – all reaffirm our commitment to our first strategic choice of “boosting the core chewing gum business.” to add value to what we offer our consumers, customers and associates. Finally, our focus on innovation – in our products, processes, and systems – is providing us with essential building blocks The global integration of our operating and financial for future growth. In 2002, we systems makes us a more power-
unveiled Eclipse Flash™ strips (fla- ful manufacturer and an agile vorful, dissolvable films for instant partner to both our suppliers
fresh breath) and Orbit Drops™ and our customers. It will pro- (sugar-free lozenges). In addition vide us with more complete, to being innovative, they also sup- higher quality data on a more port our strategic choice to timely basis. We will be in a bet- diversify our business “close to ter position to share data and home.” Both of these confectionery learnings with our supply chain expansions build upon our partners and to squeeze ineffi- existing expertise in flavor, oral ciencies out of the system. and dental benefits, imaginative packaging, wide- Easier access to consumer behavior insights will afford spread distribution, and effective advertising. These us the ability to respond to their needs in even more products are still in their relative infancy, but customer meaningful ways. Finally, our associates in manufactur- and consumer response to date has been very positive. ing will achieve even greater productivity thanks to infor-
Our internal development initiatives continue to add to mation and shared knowledge being placed at their fin-
our new product pipeline with innovative and attractive gertips. confectionary offerings for 2003 and beyond. It is clear to me that 2002 was a milestone year for the Wrigley Company, and I firmly believe that our team of All of these opportunities and accomplishments are very talented people, who bring their passion and commit- exciting and bode well for Wrigley’s future, but they also ment to work with them everyday, deserve the credit and make our business more complex. Our strategic path our deepest gratitude for the impressive accomplish- dictates the need for a robust technology infrastructure ments of the past twelve months. From Chicago to in order to remain a leader in the marketplace. Over the Munich to Guangzhou – from the factory floor to the
6 satellite offices to the Wrigley Building – every member Wrigley Values. In our pursuit of of our team operates from the same foundation of ethics and shared values, with an emphasis on treating those generational growth and prosperity for our stakeholders with whom we interact with trust, dignity and respect. the entire Wrigley organization is committed to acting This year has tested our mettle, and Wrigley associates have answered the call with creativity, cooperation in a manner consistent with the shared values we and dedication. hold paramount: I would also like to acknowledge the strength and commitment of our Board of Directors. Their broad range – We treat each other with trust, dignity and respect. of experience and expertise are brought to bear on our Company with enthusiasm and vigor. They take their – We create an environment where people from diverse corporate governance responsibilities seriously, and cultures and backgrounds work together effectively. have made it their business to really know our business.
As a result, they provide valuable perspectives and keen – We support and have the courage to take measured risk. insights on growth opportunities and strategic direction, while helping to preserve the Company’s values. – We act with a sense of urgency without sacrificing excellence. Our future holds many opportunities for success on a variety of fronts, and we are committed to pursuing them – We foster a spirit of innovation in all areas of vigorously. With your continued support, we will maintain our business. our aggressive pace of operations and innovation to grow and expand our business, remain top of mind with – We strive for effective communication that results in consumers and customers, and create additional value teamwork, shared knowledge and ideas. for all our stakeholders around the world.
Sincerely, – We make an extraordinary effort to attract, identify, recruit and retain the very best person for every job.
– We pursue lifelong learning and personal development.
– We encourage individual leadership, responsibility William Wrigley, Jr. and accountability. President and Chief Executive Officer – We demand of ourselves high standards of ethical behavior.
– We develop long-term relationships for mutual growth and profitability. Americas
137
42% 121
109
10 0 102
'98 '99 '00 '01 '02
REGIONAL SALES GROWTH REGIONAL SALES Index Versus 1998 As a Percent of Total Company Sales
8 Wrigley’s chewing gum business in the Americas is vital and growing. In the U.S. and
Canada, new product offerings are delivering added value, while long-standing favorites are enjoying rejuvenation. Amurol Confections continues to capture the imagination of children, while in Latin America, Wrigley is exploring opportunities to reach consumers.
Building on the strength and success of the Eclipse brand
and its breath-freshening benefits, Eclipse Flash strips
were introduced in the U.S. in 2002 as the first non-gum Breaking New product under the Wrigley banner. In January 2003, a new spearmint flavor was added to the Eclipse Flash
Ground with line and the Winterfresh brand was extended to include Wrigley Brands Winterfresh Thin Ice™.
In addition to entering new confectionery categories, the
Americas continued to boost its core chewing gum business.
Doublemint, Wrigley’s Spearmint and Juicy Fruit were
improved with longer-lasting formulas and bold, new
graphics. The Orbit brand added a new spearmint offering
and continued to build distribution, sales and consumer
loyalty. At Amurol, the popular Bubble Tape brand
continued to do well in the U.S. and was modified for a
new appearance in Europe and Canada under the
Hubba Bubba brand.
Canada is also leveraging innovations with Juicy Fruit.
The brand is enjoying a surge in popularity in a sugarfree
pellet format and, this past year, new Juicy Fruit Red
Higher shipment volumes and new products led to a 13% added another dimension of great fruit taste. sales increase in the Americas region this year.
Excellence in executing new product launches and brand
extensions has helped spur growth in the Americas region
and driven positive business results.
9 EMEAI
133 43%
112
10 0 101 100
'98 '99 '00 '01 '02
REGIONAL SALES GROWTH REGIONAL SALES Index Versus 1998 As a Percent of Total Company Sales
10 Delivering great-tasting, high quality brands that cross borders and appeal to consumers in approximately 100 different countries is no small challenge. The EMEAI team continues to deliver positive results by creating brands and strategies that generate business across the region and help to increase chewing gum consumption.
EMEAI is Wrigley’s largest geographic region including
Europe, the Middle East, Africa and India. Europe
represents the majority of the region, and Wrigley’s port- Building Wrigley folio of brands there continues to create excitement in the confectionery category. The popular Airwaves brand
Brands that added a new Spicy Cocktail flavor this year, and the Cross Borders Hubba Bubba brand expanded to include Hubba Bubba Bubble Tape in Germany, the U.K. and France. While
these products helped boost Wrigley’s core business, new
product offerings supported diversification into other
confectionery areas. Orbit, one of the best selling gum
brands in the region, expanded to include Orbit Drops,
sugarfree lozenges available in four great flavors. The
Extra brand also evolved with the introduction of Extra
Thin Ice films, a new entry in the breath strip arena.
Also launched in 2002 was X•Cite, a new confectionery
experience with powerful mint taste. A multi-national
team worked together to create a consumer brand that
transcended geographic boundaries and then rolled the
product out across a large portion of Europe.
The EMEAI region delivered strong volume gains and an The expertise of country and regional teams working 18% sales increase in 2002. together have driven increases in consumption and
expanded Wrigley’s business in target geographies.
11 Asia/Pacific 162
149
15% 125 112
10 0
'98 '99 '00 '01 '02
REGIONAL SALES GROWTH REGIONAL SALES Index Versus 1998 As a Percent of Total Company Sales
12 Parts of Asia, like Taiwan and the Philippines, have been home to Wrigley products for many years. Other countries in the region, particularly China, are still fairly new. The
Pacific region is one of Wrigley’s most well established international geographies. How do you generate growth in these diverse environments? By tailoring brands to increase consumption and Wrigley’s presence in everyday life.
Asia’s large population and lower average chewing gum
consumption present opportunities for Wrigley. It also has
its challenges, with cultural and economic differences Tailoring Wrigley across the countries that make up the region. Wrigley’s team in Asia has increased consumption by delivering Brands to Increase products with tastes and benefits that meet the needs of Consumption consumers and offering varying price points so as to make Wrigley’s gum an affordable daily pleasure for all.
These products include Extra sugarfree gum in several
fruit flavors, and Airwaves and Cool Air brands with
vapor release formulas.
In the Pacific, consumers have enjoyed and been loyal
to Wrigley brands like P.K. for more than 80 years.
Sugarfree Extra, Wrigley’s number one brand in the region,
continues to deliver dental benefits and appeal to
consumers with its flavor variety. New products like X•Cite
and extensions of the Extra for Kids brand are creating
excitement in the chewing gum category. Keeping product
news fresh and quality high, the Pacific team has This year’s sales growth of 9% in the combined Pacific and Asia regions reflects higher volume shipments, new product continued to maintain a leadership position in this contributions and growing consumption. important region despite aggressive competitive activity.
In both Asia and Pacific, local insights have led to
successful strategies and products that offer the right
balance of benefit, taste and value for their consumers.
13 MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Dollar and share amounts in thousands except per share figures
The Management’s Discussion and Analysis reviews the Company’s results of operations,
liquidity and capital resources, critical accounting policies and estimates, and certain
other matters. This discussion should be read in conjunction with the consolidated
financial statements and related notes contained in this Annual Report.
In the first quarter 2002, the Company adopted the from 2001. Net sales for 2002 were favorably affected by accounting rules for Emerging Issues Task Force Issue higher worldwide shipments and favorable product mix. No. 00-14, “Accounting for Certain Sales Incentives” and Higher worldwide shipments, including the introduction No. 00-25, “Vendor Income Statement Characterization of of new products, increased net sales by 8%. New products Consideration Paid to a Reseller of the Vendors Products” accounted for 22.9% of net sales in 2002. Favorable mix (“Issues”), as codified by Issue No. 01-09 “Accounting for from premium priced products increased net sales by 4%. Consideration Given by a Vendor to a Customer or Reseller Translation of foreign currencies to a weaker U.S. dollar of the Vendors Products.” In adopting these accounting increased reported net sales by approximately 2%.
rules, the Company began reporting cash consideration Net sales for the Americas in 2002 increased 13% given in connection with certain consumer and trade sales compared to 2001. Favorable product mix increased net promotions such as coupon redemptions, in-store display sales 7%, due mainly to increased U.S. sales of Eclipse® incentives, co-operative advertising and new product and Orbit® gum and the introduction of Eclipse® Flash introduction fees, as deductions from sales rather than strips. Higher shipment volume in the U.S. and Canada, as selling, general and administrative expense. The as well as for Amurol Confections, increased net sales for consumer and trade sales promotions applicable to these the Americas by 6%. Issues totaled $41,034, $28,227 and $19,592 for 2002, 2001 International 2002 net sales increased by 16% as a result of and 2000, respectively. Adoption of these accounting rules growth in shipment volume, favorable product mix, had no impact on the Company’s financial position or selected selling price changes and translation of foreign net earnings. The consumer and trade sales promotions sales to a weaker U.S. dollar. Unit volume increased net applicable to these Issues are reflected in net sales for sales by 8% over 2001, due primarily to growth in Russia, all periods presented in this discussion, the quarterly China, France, the U.K., and numerous other international and selected financial data, the financial statements markets. Net sales were also favorably impacted by new and related notes. product introductions in all regions. Favorable mix from
RESULTS OF OPERATIONS premium priced products both in Europe and Asia Net Sales increased International net sales by 3%, while selected
Consolidated net sales for 2002 increased $344,899 or 14% selling price changes primarily in Europe and Australia
14 contributed 1% to International net sales growth. Cost of Sales and Gross Profit
International net sales were increased by 4% as a result In 2002, consolidated cost of sales increased $153,161, or of translation of foreign currencies, primarily in Europe, to 15% from 2001. Excluding the effect of foreign currency a weaker U.S. dollar. translation, the cost of sales increase was approximately Consolidated net sales for 2001 increased $275,305 or 13% 14% from 2001. Higher worldwide shipments increased from 2000. Net sales for 2001 were favorably affected by cost of sales by 8%. Higher costs due to worldwide product higher worldwide shipments, selected selling price mix increased cost of sales by 5%. Slightly higher changes, and product mix. Higher worldwide shipments, worldwide product costs increased cost of sales by 1%. including the introduction of new products, increased net Consolidated gross profit in 2002 was $1,596,103, an sales by 10%. New products accounted for 19.6% of net increase of $191,738 or 14% from 2001. The consolidated sales in 2001. Selected selling price changes increased net gross profit margin on net sales was 58.1% for 2002, sales by 3%, while favorable mix from premium priced down 0.4 percentage points from the 2001 gross margin products increased net sales by 2%. Translation of foreign of 58.5%, mainly due to slightly higher product costs. currency sales to a stronger U.S. dollar reduced reported In 2001, consolidated cost of sales increased $92,788, net sales by approximately 2%. or 10% from 2000. Excluding the effect of foreign currency Net sales for the Americas in 2001 increased 12% compared translation, the cost of sales increase was approximately to 2000. Higher shipment volume, primarily in the U.S. 13% from 2000. Higher worldwide shipments increased and Latin American markets, as well as for Amurol cost of sales by 10%. Higher costs due to worldwide Confections, increased net sales for the Americas by 8%. product mix increased cost of sales by 3%. Consolidated Favorable product mix increased net sales 3%, due mainly gross profit in 2001 was $1,404,365, an increase of $182,517 to increased U.S. sales of Eclipse® and the introduction of or 15% from 2000. The consolidated gross profit margin Orbit®. Net sales also increased 1% as a result of selected on net sales was 58.5% for 2001, up 1 percentage point selling price increases. from the 2000 gross margin of 57.5%, mainly due to the
International 2001 net sales increased by 13% as a result of combination of higher selling prices, favorable product growth in shipment volume, selected selling price changes mix and lower product costs. and favorable product mix, partially offset by translation of Selling, General and Administrative Expenses foreign currencies to a stronger U.S. dollar. Unit volume Consolidated 2002 selling, general and administrative increased net sales by 11% over 2000, due primarily to (SG&A) expenses were $1,011,029, up $120,020 or growth in China, Russia and numerous other international 13% from 2001. Excluding the impact of foreign markets. Net sales were also favorably impacted by new currency translation, consolidated selling, general and product introductions across all regions. Selected selling administrative expenses were up 12% in 2002. Higher price changes increased International net sales by 4%, brand support in the Americas, Europe and Pacific regions, while favorable mix from premium priced products both in including spending behind new and improved products Europe and Asia contributed 2% to International net sales increased SG&A by 5%. Higher selling and other marketing growth. International net sales were reduced by 4% as a expenses to support growth in the U.S., Russia, China and result of translation of foreign currencies, primarily in other key markets increased SG&A by 3%. Finally, general Europe and Australia, to a stronger U.S. dollar. and administrative expenses increased SG&A by 4%.
15 The increase included higher investment in new technology Other Expense
and research and development. Also contributing to the In 2002, other expense was $10,571, up $6,028 from 2001. increase were approximately $10,000 in costs connected The increase in expense was driven primarily by foreign with the exploration of a business combination with currency transaction losses, mostly caused by a weaker Hershey Foods Corporation. U.S. dollar.
Consolidated 2001 SG&A expenses increased $132,404 or In 2001, other expense was $4,543, an increase of $1,427 17% from 2000. Excluding the effects of foreign currency from 2000. The change was driven primarily by foreign translation, the increase was approximately 20% in currency transaction losses in Europe. 2001. Higher worldwide merchandising and consumer Income Taxes promotion expenditures, including spending to support Income taxes in 2002 were $181,896, up $17,516 or 11% new product launches, increased SG&A by 5%. Increases from 2001. The result is due primarily to an increase in in advertising spending, primarily in Europe and Asia, pretax earnings of $56,055 or 11%. The consolidated increased SG&A by 3%. Selling and other marketing spend- effective income tax rate in 2002 was 31.2%. ing increases in the U.S., Russia, China, the U.K. and
other key markets increased SG&A by 5%. Finally, higher Income taxes in 2001 were $164,380, up $14,010 or 9% from worldwide general and administrative spending increased 2000. The result is due primarily to an increase in pretax SG&A by 4%. earnings of $48,054 or 10%. The effective consolidated income tax rate in 2001 was 31.2%. As a percentage of consolidated net sales, SG&A expenses
were as follows: Net Earnings
2002 2001 2000 Consolidated net earnings in 2002 totaled $401,525, Advertising 13.2% 13.7% 14.5% up $38,539 or 11%. On a per share basis, net earnings Merchandising & Promotion 4.8% 4.8% 3.5% increased $.17 or 11% from 2001. Total Brand Support 18.0% 18.5% 18.0% Selling and Other Marketing 9.9% 10.0% 9.4% Consolidated net earnings in 2001 increased $34,044 General and Administrative 8.9% 8.6% 8.3% or 10%. On a per share basis, net earnings increased 36.8% 37.1% 35.7% $.16 or 11% from 2000.
Investment Income LIQUIDITY AND CAPITAL RESOURCES The Company earns investment income primarily from Operating Cash Flow and Current Ratio the cash and cash equivalent and short-term investment Net cash provided by operating activities in 2002 was balances it maintains throughout the year. In 2002, $374,435 compared with $390,491 in 2001 and $448,283 consolidated investment income decreased $9,635 from in 2000. The decrease from 2001 is primarily due to 2001. The decrease reflected lower worldwide yields in pension and post-retirement plan contributions paid 2002 and interest income received from a U.S. tax refund which increased $75,800 from 2001 and higher working in the third quarter of 2001. capital requirements, mostly offset by increased earnings. In 2001, consolidated investment income decreased $632 The decrease in 2001 compared to 2000 was mainly due or 3% from 2000. The decrease was primarily due to lower to higher working capital requirements as a result of worldwide yields, partially offset by interest income from increased sales in 2001, combined with working capital a U.S. tax refund.
16 reductions in 2000. The Company had a current ratio Line of Credit
(current assets divided by current liabilities) in excess In September 2002, the Company renewed its $100 million, of 2.6 to 1 at December 31, 2002 and in excess of 2.7 to 1 unsecured, line of credit. There were no borrowings under at December 31, 2001. The Company’s current ratio this line during 2002. Upon drawing on the line of credit, has decreased as a result of higher pension and post- the Company has the option to elect a fixed or floating retirement plan contributions in 2002. interest rate. The line of credit expires in September 2003.
Additions to Property, Plant and Equipment Contractual Obligations
Capital expenditures for 2002 were $216,872, an increase In its normal course of business, the Company enters into of $35,112 from the 2001 capital expenditures of $181,760. arrangements that obligate the Company to make future The increase was due primarily to spending in order to payments under contracts such as leases and unconditional increase worldwide manufacturing capacity, including purchase obligations. The Company enters into these spending to support new product introductions and arrangements in its normal course of business in order expenditures on the Company’s global enterprise resource to ensure adequate levels of raw materials, office and planning (ERP) systems project. Capital expenditures for warehousing space and machinery, equipment or 2001 were $181,760, an increase of $56,692 from the 2000 services for significant capital projects. Of these items, capital expenditures of $125,068. The increase was due capital leases, which total $5,149, are currently recognized primarily to spending in order to increase worldwide as liabilities in the Company’s consolidated balance manufacturing capacity and expenditures on the global sheet at December 31, 2002. There were no capital lease ERP systems project. Additions to property, plant and obligations at December 31, 2001. Operating lease equipment in 2003 are expected to be slightly lower than obligations and unconditional purchase obligations, which 2002 levels and are also planned to be funded from the total $647,447 and are primarily related to normal Company’s cash flow from operations. anticipated raw material requirements for 2003, are not recognized as liabilities in the Company’s consolidated Share Repurchases balance sheet in accordance with generally accepted In 2002, the Company repurchased 527 shares totaling accounting principles. $27,759, including 483 shares totaling $25,504 under A summary of the Company’s contractual obligations at the Board of Directors authorized Share Repurchase the end of 2002 is as follows: Program and 44 shares totaling $2,255 under the shareholder approved Management Incentive Plan (MIP). Payments due by period Contractual Less than 2-3 4-5 At December 31, 2002, $89,258 remained unpurchased Obligations Total 1 Year Years Years Thereafter Capital lease under the Share Repurchase Program. In 2001, the obligations $ 6,444 2,516 3,367 561 — Company repurchased 744 shares totaling $36,432, Operating leases 35,467 10,269 13,042 5,999 6,157 including repurchases under the Board of Directors Purchase authorized Share Repurchase Program of 704 shares obligations 611,980 536,594 75,319 67 — Total $653,891 549,379 91,728 6,627 6,157 totaling $34,652, net of proceeds received from the sale of put options on Company stock. In 2001, the Company Additionally, the Company does not have any related party also repurchased 40 shares totaling $1,780 under the transactions that materially affect the Company’s results shareholder approved MIP. of operations, cash flows or financial condition.
17 OTHER MATTERS management judgment and are based upon assumptions Critical Accounting Policies and Estimates about expected future operating performance.
The Company’s significant accounting policies are The actual cash flows could differ from management’s discussed in the notes to the consolidated financial estimates due to changes in business conditions, statements. The application of certain of these policies operating performance, and economic conditions. requires significant judgments or an estimation process Pension and Other Post-Retirement Plan Benefits — that can affect the results of operations, financial position The Company sponsors pension and other post-retirement and cash flows of the Company, as well as the related plans in various forms covering substantially all employees footnote disclosures. The Company bases its estimates who meet eligibility requirements. Independent actuaries on historical experience and other assumptions that it perform the required calculation to determine pension believes are reasonable. If actual amounts are ultimately and other post-retirement plan expense, in accordance different from previous estimates, the revisions are with accounting principles generally accepted in the U.S. included in the Company’s results of operations for Several statistical and other factors which attempt to the period in which the actual amounts become known. anticipate future events are used in calculating the The accounting policies and estimates with the greatest expense and liability related to the plans. These factors potential to have a significant impact on the Company’s include assumptions about the discount rate, expected operating results, financial position, cash flows and return on plan assets, rate of future employee footnote disclosures are as follows: compensation increases and trends in healthcare costs.
Allowance for Doubtful Accounts — In the normal course In addition, the Company also uses subjective actuarial of business, the Company extends credit to customers assumptions such as withdrawal and mortality rates that satisfy pre-defined credit criteria. An allowance for to estimate these factors. The actuarial assumptions doubtful accounts, which is reported as part of accounts used by the Company may differ from actual results due receivable, is determined through an analysis of the aging to changing market and economic conditions, higher of accounts receivable, assessments of collectibility based or lower withdrawal rates or longer or shorter life spans on historical trends and an evaluation of current and of participants. These differences may impact the projected economic conditions at the balance sheet date. amount of pension and post-retirement liability and Actual collections of accounts receivable could differ expense recorded by the Company. from management’s estimates due to changes in future In 2003, the Company will decrease the long-term rate economic or industry conditions or specific customers’ of return assumption for its domestic plan assets from financial condition. 9.25% to 8.75%. The company expects pension expenses
Valuation of Long-lived Assets — Long-lived assets, to increase by approximately $11,000 in 2003 as a result primarily property, plant and equipment, are reviewed of the change in rate of return assumption in 2003 and for impairment as events or changes in circumstances a decrease in discount rates in 2002 for the domestic occur indicating that the amount of the asset reflected and certain foreign pension plans. in the Company’s balance sheet may not be recoverable. Income Taxes — Deferred taxes are recognized for the An estimate of undiscounted cash flows produced by the future tax effects of temporary differences between asset, or the appropriate group of assets, is compared to the financial and income tax reporting using tax rates in effect carrying value to determine whether impairment exists. for the years in which the differences are expected to The estimates of future cash flows involve considerable 18 reverse. Federal income taxes are provided on that portion and does not use them for trading or speculative purposes. of the income of foreign subsidiaries that is expected The counter parties to the hedging activities are highly to be remitted to the United States and be taxable. The rated financial institutions. Additional information Company, along with third-party advisers, periodically regarding the Company’s use of derivative financial reviews assumptions and estimates of the Company’s instruments is included in the notes to the consolidated probable tax obligations using historical experience in tax financial statements. The Company has determined that jurisdictions and informed judgments. movements in market values of financial instruments used to mitigate identified risks are not expected to have a Euro Conversion material impact on future earnings, cash flows, or reported On January 1, 1999, the exchange rates of twelve countries fair values. (Germany, France, the Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, Greece and Forward-Looking Statements Luxembourg) were fixed among one another and became Statements contained in this report may be considered the currency of the euro. The currencies of the twelve to be forward-looking statements. The Private Securities countries remained in circulation until early 2002. The Litigation Reform Act of 1995 provides a safe harbor euro bills and coinage were introduced on January 1, 2002. for forward-looking statements. The Company wishes In conjunction with the conversion process to the euro, to ensure that such statements are accompanied by the Company took steps to convert its information meaningful cautionary statements to comply with the technology systems to handle the new currency, prepared safe harbor under the Act. The Company notes that for maintaining accounting, tax and other business a variety of factors could cause actual results to differ records in the new currency and evaluated the ability materially from the anticipated results or expectations of all significant vendors and customers to accurately expressed in these forward-looking statements. convert to the euro. The introduction and use of the Important factors that may influence the operations, euro has not had a material effect on the Company’s performance, development and results of the Company’s foreign operations, foreign exchange practices, or business include global and local business and economic hedging and cash management activities. Additionally, conditions; currency exchange and interest rates; ingredient, the introduction of the euro currency did not have a labor, and other operating costs; insufficient or under- materially adverse impact on the Company’s consolidated utilization of manufacturing capacity; destruction of all financial condition, cash flows or results of operations. or part of manufacturing facilities; labor strikes or unrest;
Market Risk political or economic instability in local markets; war or acts of terrorism; competition and other industry trends; Inherent in the Company’s operations are certain risks retention of preferred retail space; effectiveness of marketing related to changes in foreign currency exchange rates, campaigns or new product introductions; consumer interest rates, and the equity markets. Changes in these preferences, spending patterns, and demographic trends; factors could cause fluctuations in the Company’s net legislation and governmental regulation; and accounting earnings and cash flows. In the normal course of business, policies and practices. the Company identifies these risks and mitigates their financial impact through its corporate policies and hedging We caution the reader that the list of factors may not activities. The Company’s hedging activities include the be exhaustive. The Company undertakes no obligation use of derivative financial instruments. The Company to update any forward-looking statement, whether as a uses derivatives only where there is an underlying exposure result of new information, future events, or otherwise.
19 QUARTERLY DATA
In thousands of dollars except per share amounts
CONSOLIDATED RESULTS
Net Cost of Net Net Earnings Sales Sales Earnings Per Share
2002 First Quarter $ 599,026 249,399 85,332 .38 Second Quarter 708,467 286,854 109,967 .49 Third Quarter 699,511 292,341 98,464 .44 Fourth Quarter 739,314 321,621 107,762 .48
Total $ 2,746,318 1,150,215 401,525 1.78
2001 First Quarter $ 556,212 228,395 81,530 .36 Second Quarter 617,640 251,096 100,033 .44 Third Quarter 589,611 247,448 91,507 .41 Fourth Quarter 637,956 270,115 89,916 .40
Total $ 2,401,419 997,054 362,986 1.61
20 MARKET PRICES
Although there is no established public trading market for the 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 high and low sales prices for the two most recent years on the New York Stock Exchange.
2002 2002 2001 2001 High Low High Low
First Quarter $ 56.90 49.89 48.44 42.94 Second Quarter 58.90 52.50 49.70 44.41 Third Quarter 56.84 44.21 52.00 46.55 Fourth Quarter 56.03 49.25 53.30 48.02
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.
2002 2001
First Quarter $ .205 .190
Second Quarter .205 .190
Third Quarter .205 .190
Fourth Quarter .205 .190
Total $ .820 .760
21 SELECTED FINANCIAL DATA
In thousands of dollars and shares except per share amounts, stockholders of record and employees
2002 2001 2000 1999
OPERATING DATA Net Sales $ 2,746,318 2,401,419 2,126,114 2,045,227 Cost of Sales 1,150,215 997,054 904,266 904,183 Income Taxes 181,896 164,380 150,370 136,247 Earnings before cumulative effect of accounting changes in 1992* 401,525 362,986 328,942 308,183 Per Share of Common Stock (basic and diluted) 1.78 1.61 1.45 1.33 Net Earnings 401,525 362,986 328,942 308,183 Per Share of Common Stock (basic and diluted) 1.78 1.61 1.45 1.33 Dividends Paid 181,232 167,922 159,138 153,812 Per Share of Common Stock .805 .745 .701 .664 As a Percent of Net Earnings 45 % 46 % 48 % 50 % Dividends Declared Per Share of Common Stock .820 .760 .701 .740 Average Shares Outstanding 225,145 225,349 227,037 231,722
OTHER FINANCIAL DATA Net Property, Plant and Equipment $ 836,110 684,379 607,034 559,140 Total Assets 2,108,296 1,777,793 1,574,740 1,547,745 Working Capital 620,205 581,519 540,505 551,921 Stockholders’ Equity 1,522,576 1,276,197 1,132,897 1,138,775 Return on Average Equity 28.7 % 30.1 % 29.0 % 26.8 % Stockholders of Record at Close of Year 40,534 38,701 37,781 38,626 Employees at Close of Year 11,250 10,800 9,800 9,300 Market Price of Stock High 58.90 53.30 48.31 50.31 Low 44.21 42.94 29.94 33.25
*(includes amounts related to factory closure — net gain of $6,763 or $.03 per share in 1998, and net costs of $2,145 or $.01 per share and $12,990 or $.06 per share in 1997 and 1996, respectively; and nonrecurring net gain on sale of Singapore property in 1994 of $24,766 or $.11 per share)
22 1998 1997 1996 1995 1994 1993 1992
1,990,286 1,923,963 1,835,987 1,754,931 1,596,551 1,428,504 1,286,921 894,988 892,751 859,414 820,478 737,239 653,687 606,263 136,378 122,614 128,840 126,492 122,746 103,944 83,730
304,501 271,626 230,272 223,739 230,533 174,891 148,573 1.31 1.17 .99 .96 .99 .75 .63 304,501 271,626 230,272 223,739 230,533 174,891 141,295 1.31 1.17 .99 .96 .99 .75 .60 150,835 135,680 118,308 111,401 104,694 87,344 72,511 .650 .585 .510 .480 .450 .375 .310 50 % 50 % 51 % 50 % 45 % 50 % 51 % .655 .595 .510 .495 .470 .375 .315 231,928 231,928 231,966 232,132 232,716 233,022 234,110
520,090 430,474 388,149 347,491 289,420 239,868 222,137 1,520,855 1,343,126 1,233,543 1,099,219 978,834 815,324 711,372 624,546 571,857 511,272 458,683 413,414 343,132 299,149 1,157,032 985,379 897,431 796,852 688,470 575,182 498,935 28.4 % 28.9 % 27.2 % 30.1 % 36.5 % 32.6 % 29.4 % 38,052 36,587 34,951 28,959 24,078 18,567 14,546 9,200 8,200 7,800 7,300 7,000 6,700 6,400
52.16 41.03 31.44 27.00 26.94 23.06 19.94 35.47 27.28 24.19 21.44 19.06 14.75 11.06
23 MANAGEMENT’S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
Management of the Wm. Wrigley Jr. Company is responsible for the preparation and integrity of the financial statements and related information presented in this Annual Report. This responsibility is carried out through a system of internal controls to ensure that assets are safeguarded, transactions are properly authorized, and financial records are accurate.
These controls include a comprehensive internal audit program, written financial policies and procedures, appropriate division of responsibility, and careful selection and training of personnel. Written policies include a Code of Business Conduct prescribing that all employees maintain the highest ethical and business standards.
Ernst & Young LLP has conducted an independent audit of the financial statements, and its report appears below.
The Board of Directors exercises its control responsibility through an Audit Committee composed entirely of independent directors. The Audit Committee meets regularly to review accounting and control matters. Both Ernst & Young LLP and the internal auditors have direct access to the Audit Committee and periodically meet privately with them.
WM. WRIGLEY JR. COMPANY
Chicago, Illinois January 23, 2003
REPORT OF INDEPENDENT AUDITORS
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 and associated companies (the “Company”) at December 31, 2002 and 2001 and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the 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, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois January 23, 2003
24 CONSOLIDATED STATEMENT OF EARNINGS
In thousands of dollars except per share amounts
2002 2001 2000
EARNINGS Net sales $ 2,746,318 2,401,419 2,126,114 Cost of sales 1,150,215 997,054 904,266
Gross profit 1,596,103 1,404,365 1,221,848 Selling, general and administrative expense 1,011,029 891,009 758,605
Operating income 585,074 513,356 463,243 Investment income 8,918 18,553 19,185 Other expense (10,571) (4,543) (3,116)
Earnings before income taxes 583,421 527,366 479,312 Income taxes 181,896 164,380 150,370
Net earnings $ 401,525 362,986 328,942
PER SHARE AMOUNTS Net earnings per share of Common Stock (basic and diluted) $ 1.78 1.61 1.45
Dividends paid per share of Common Stock .805 .745 .701
See accompanying accounting policies and notes.
25 CONSOLIDATED BALANCE SHEET
In thousands of dollars
2002 2001 ASSETS Current assets: Cash and cash equivalents $ 279,276 307,785 Short-term investments, at amortized cost 25,621 25,450 Accounts receivable (less allowance for doubtful accounts: 2002-$5,850; 2001-$7,712) 312,919 239,885 Inventories: Finished goods 88,583 75,693 Raw materials and supplies 232,613 203,288
321,196 278,981
Other current assets 47,720 46,896 Deferred income taxes - current 19,560 14,846
Total current assets 1,006,292 913,843 Marketable equity securities, at fair value 19,411 25,300 Deferred charges and other assets 213,483 124,666 Deferred income taxes - noncurrent 33,000 29,605 Property, plant and equipment, at cost: Land 48,968 39,933 Buildings and building equipment 393,780 359,109 Machinery and equipment 1,049,001 857,054
1,491,749 1,256,096
Less accumulated depreciation 655,639 571,717
Net property, plant and equipment 836,110 684,379
TOTAL ASSETS $ 2,108,296 1,777,793
26 In thousands of dollars and shares
2002 2001
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 97,705 91,397 Accrued expenses 172,137 128,264 Dividends payable 46,137 42,741 Income and other taxes payable 66,893 68,467 Deferred income taxes — current 3,215 1,455
Total current liabilities 386,087 332,324 Deferred income taxes — noncurrent 70,589 46,430 Other noncurrent liabilities 129,044 122,842 Stockholders’ equity: Preferred Stock — no par value Authorized: 20,000 shares Issued: None Common Stock — no par value Common Stock Authorized: 400,000 shares Issued: 2002 - 190,898 shares; 2001 - 189,800 shares 12,719 12,646 Class B Common Stock — convertible Authorized: 80,000 shares Issued and outstanding: 2002 - 41,543 shares; 2001 - 42,641 shares 2,777 2,850 Additional paid-in capital 4,209 1,153 Retained earnings 1,902,990 1,684,337 Common Stock in treasury, at cost (2002 - 7,385 shares; 2001 - 7,491 shares) (297,156) (289,799) Accumulated other comprehensive income: Foreign currency translation adjustment (112,303) (149,310) Gain (loss) on derivative contracts (853) 46 Unrealized holding gains on marketable equity securities 10,193 14,274
(102,963) (134,990)
Total stockholders’ equity 1,522,576 1,276,197
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,108,296 1,777,793
See accompanying accounting policies and notes.
27 CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands of dollars
2002 2001 2000
OPERATING ACTIVITIES Net earnings $ 401,525 362,986 328,942 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 85,568 68,326 57,880 Loss on sales of property, plant and equipment 1,014 2,910 778 (Increase) Decrease in: Accounts receivable (55,288) (53,162) (18,483) Inventories (31,858) (29,487) (2,812) Other current assets 1,304 (8,079) 199 Deferred charges and other assets (78,585) (15,852) 30,408 Increase (Decrease) in: Accounts payable 756 20,537 12,988 Accrued expenses 33,416 16,360 18,015 Income and other taxes payable (3,715) 9,565 14,670 Deferred income taxes 19,082 5,570 2,546 Other noncurrent liabilities 1,216 10,817 3,152
Net cash provided by operating activities 374,435 390,491 448,283
INVESTING ACTIVITIES Additions to property, plant and equipment (216,872) (181,760) (125,068) Proceeds from property retirements 5,017 2,376 1,128 Purchases of short-term investments (41,177) (24,448) (125,728) Maturities of short-term investments 44,858 26,835 115,007
Net cash used in investing activities (208,174) (176,997) (134,661)
FINANCING ACTIVITIES Dividends paid (181,232) (167,922) (159,138) Common Stock purchased, net (16,402) (34,173) (131,765)
Net cash used in financing activities (197,634) (202,095) (290,903) Effect of exchange rate changes on cash and cash equivalents 2,864 (4,213) (10,506)
Net increase (decrease) in cash and cash equivalents (28,509) 7,186 12,213 Cash and cash equivalents at beginning of year 307,785 300,599 288,386
Cash and cash equivalents at end of year $ 279,276 307,785 300,599
SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid $ 173,010 146,858 136,311
Interest paid $ 1,636 1,101 749
Interest and dividends received $ 8,974 18,570 19,243
See accompanying accounting policies and notes.
28 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
In thousands of dollars and shares
Common Class B Additional Common Other Stock- Shares Common Common Paid-in Retained Stock In Comprehensive holders’ Outstanding Stock Stock Capital Earnings Treasury Income Equity
BALANCE DECEMBER 31, 1999 183,764 $ 12,481 3,015 273 1,322,137 (125,712) (73,419) 1,138,775
Net earnings 328,942 328,942 Other comprehensive income: Foreign currency translation adjustments (36,095) (36,095) Unrealized holding loss on marketable equity securities, net of $5,166 tax (9,500) (9,500)
Total comprehensive income 283,347 Dividends to shareholders (158,532) (158,532) Treasury share purchases (3,535) (131,765) (131,765) Stock awards granted 67 73 999 1,072 Conversion from Class B Common to Common 1,155 77 (77) —
BALANCE DECEMBER 31, 2000 181,451 $ 12,558 2,938 346 1,492,547 (256,478) (119,014) 1,132,897
Net earnings 362,986 362,986 Other comprehensive income: Foreign currency translation adjustments (12,945) (12,945) Unrealized holding loss on marketable equity securities, net of $1,655 tax (3,077) (3,077) Gain on derivative contracts, net of $21 tax 46 46
Total comprehensive income 347,010 Dividends to shareholders (171,196) (171,196) Treasury share purchases (744) (36,432) (36,432) Options exercised and stock awards granted 170 807 3,111 3,918 Conversion from Class B Common to Common 1,432 88 (88) —
BALANCE DECEMBER 31, 2001 182,309 $ 12,646 2,850 1,153 1,684,337 (289,799) (134,990) 1,276,197
Net earnings 401,525 401,525 Other comprehensive income: Foreign currency translation adjustments 37,007 37,007 Unrealized holding loss on marketable equity securities, net of $2,150 tax (4,081) (4,081) Loss on derivative contracts, net of $363 tax (899) (899)
Total comprehensive income 433,552 Dividends to shareholders (184,628) (184,628) Treasury share purchases (527) (27,759) (27,759) Options exercised and stock awards granted 633 1,676 20,402 22,078 Tax benefit related to stock options exercised 1,380 1,380 Conversion from Class B Common to Common 1,098 73 (73) ESOP tax benefit 1,756 1,756
BALANCE DECEMBER 31, 2002 183,513 $ 12,719 2,777 4,209 1,902,990 (297,156) (102,963) 1,522,576
See accompanying accounting policies and notes. 29 ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar and share amounts in thousands except per share figures
DESCRIPTION OF BUSINESS certain consumer and trade sales promotions such as coupon redemptions, in-store display incentives, co-operative The principal business of the Wm. Wrigley Jr. Company advertising and new product introduction fees, as deductions is manufacturing and selling chewing gum and other from sales rather than as selling, general and administrative confectionery products worldwide. All other businesses expense. The consumer and trade sales promotions applicable constitute less than 10% of combined revenues, operating to these Issues totaled $41,034, $28,227 and $19,592 for 2002, income and identifiable assets. 2001 and 2000, respectively. The consumer and trade sales BASIS OF PRESENTATION promotions applicable to these Issues are reflected in net sales for all periods. Adoption of the accounting rules had no The consolidated financial statements include the accounts impact on the Company’s financial position or net earnings. of the Wm. Wrigley Jr. Company and its associated companies (the Company). Intercompany balances and transactions The Company also adopted SFAS 148, “Accounting for Stock- have been eliminated. Preparation of financial statements in Based Compensation — Transition and Disclosure” as of conformity with generally accepted accounting principles December 31, 2002. This Statement amends SFAS No. 123, requires management to make estimates and assumptions that “Accounting for Stock-Based Compensation,” to provide affect assets, liabilities, revenues, expenses and certain financial alternative methods of transition for a voluntary change to statement disclosures. Actual results may vary from those the fair value based method of accounting for stock-based estimates. Additionally, certain amounts reported in 2000 and employee compensation. In addition, this Statement amends 2001 have been reclassified to conform to the 2002 presentation. the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES about the method of accounting for stock-based employee Recently Adopted Accounting Policies compensation and the effect of the method used on reported On January 1, 2002, the Company adopted the accounting results. A discussion of the Company’s accounting policy and rules under Statement of Financial Accounting Standards (SFAS) the required disclosures under SFAS 148 are included in the 142, “Goodwill and Other Intangible Assets.” Under SFAS 142, Stock-Based Compensation accounting policy note on page 31. goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment Cash and Cash Equivalents tests. Other intangible assets will continue to be amortized The Company considers all highly-liquid investments with for their useful lives. During 2002, the Company performed original maturity of three months or less to be cash equivalents. the required impairment tests of goodwill and indefinite lived intangible assets. There was no impairment recognized Inventories as a result of these tests. Inventories are valued at cost on a last-in, first-out (LIFO)
In the first quarter 2002, the Company adopted the accounting basis for U.S. companies and at the lower of cost (principally rules for Emerging Issues Task Force Issue No. 00-14, first-in, first-out basis) or market for international associated “Accounting for Certain Sales Incentives” and No. 00-25, companies. Inventories totaled $321,196 and $278,981 at “Vendor Income Statement Characterization of Consideration December 31, 2002 and 2001, respectively, including $137,367 Paid to a Reseller of the Vendor’s Products” (“Issues”), as and $114,201, respectively, valued at cost on a LIFO basis. If codified by Issue No. 01-09 “Accounting for Consideration current costs had been used, such inventories would have Given by a Vendor to a Customer or Reseller of the Vendors been $15,710 and $10,513 higher than reported at December 31, Products.” In adopting these accounting rules, the Company 2002 and 2001, respectively. began reporting cash consideration given in connection with
30 Derivative Financial Instruments and liabilities are translated into U.S. dollars at exchange rates The Company accounts for all derivatives in accordance with in effect at the respective balance sheet dates resulting in SFAS 133, “Accounting for Derivatives and Hedging Activities”, foreign currency translation adjustments. Foreign currency as amended. All derivatives are recognized on the balance translation adjustments are recorded as a separate component sheet at fair value. Changes in the fair value of derivatives are of Accumulated Other Comprehensive Income within recorded in earnings or other comprehensive income, based stockholder’s equity. on whether the instrument is designated as part of a hedge Revenue Recognition transaction and, if so, the type of hedge transaction. Gains or Revenue from product sales is recognized when the goods are losses on derivative instruments reported in other comprehensive shipped. income are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The Distribution Costs ineffective portion of all hedges is recognized in earnings in The Company classifies distribution costs, including shipping the current period. and handling costs, in cost of sales.
Property, Plant and Equipment Advertising Land, building and equipment are recorded at cost. Depreciation The Company expenses all advertising costs in the year is provided primarily by the straight-line method over the incurred. Advertising expense was $362,548 in 2002, $328,346 estimated useful lives of the respective assets: buildings and in 2001 and $308,446 in 2000. building equipment — 12 to 50 years; machinery and equipment — 3 to 20 years. Expenditures for new property, Stock-Based Compensation plant and equipment and improvements that substantially The Company applies Accounting Principles Board Opinion extend the capacity or useful life of an asset are capitalized. (APB) No. 25, “Accounting for Stock Issued to Employees” Ordinary repairs and maintenance are expensed as incurred. and related interpretations in accounting for stock-based When property is retired or otherwise disposed, the cost compensation plans. APB No. 25 requires the use of the intrinsic and related depreciation are removed from the accounts and value method, which measures compensation cost as the excess any related gains or losses are included in net earnings. of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. The Impairment of Long-Lived Assets following table illustrates the effect on net earnings and earnings The Company reviews long-lived assets on at least an annual per share if the Company had applied the fair value recognition basis to determine if there are indicators of impairment. When provisions of SFAS No. 123, “Accounting for Stock-Based indicators of impairment are present, the Company evaluates Compensation” to stock-based compensation plans. the carrying value of the long-lived assets in relation to the operating performance and future undiscounted cash flows Year Ended December 31 2002 2001 2000 of the underlying assets. The Company adjusts the net book Net earnings As reported $ 401,525 362,986 328,942 value of the underlying assets if the sum of the expected future Add: Stock-based cash flows is less than book value. compensation expense included in earnings, net of tax 6,514 5,277 4,354 Foreign Currency Translation Deduct: Total stock-based compensation expense The Company has determined that the functional currency for determined under fair value each associated company, except for certain Eastern European method for all awards, net of tax $ 17,933 12,626 8,223 entities, is its local currency. As some Eastern European Pro forma net earnings $ 390,106 355,637 325,073 entities operate in economies which are considered to be highly Pro forma basic and diluted inflationary, their functional currency is the U.S. dollar. earnings per share The Company translates the results of operations of its foreign As reported $ 1.78 1.61 1.45 associated companies at the average exchange rates during Pro forma $ 1.73 1.58 1.43 the respective periods. Foreign-currency denominated assets The Company’s stock-based compensation plans are discussed further on page 34.
31 Income Taxes OTHER NONCURRENT LIABILITIES
Deferred taxes are recognized for the future tax effects of Other noncurrent liabilities at December 31, 2002, included temporary differences between financial and income tax reporting liabilities for approximately $70,400 of deferred compensation using tax rates in effect for the years in which the differences are and $5,600 for post-retirement benefits. At December 31, 2001, expected to reverse. Federal income taxes are provided on the they included liabilities for approximately $59,400 of deferred portion of the income of foreign associated companies that is compensation and $13,400 for post-retirement benefits. expected to be remitted to the U.S. and be taxable. FINANCIAL INSTRUMENTS INVESTMENTS IN DEBT AND EQUITY SECURITIES Derivative Financial Instruments And Hedging Activities The Company’s investments in debt securities, which typically The Company enters into forward exchange contracts and mature in one year or less, are held to maturity and are valued purchases currency options to hedge against foreign currency at amortized cost, which approximates fair value. The aggregate exposures of forecasted purchase and sales transactions fair values at December 31, 2002 and December 31, 2001 were, between associated companies and purchases with outside respectively, $24,370 and $13,206 for municipal securities, vendors. In addition, the Company enters into forward and $1,251 and $12,244 for other debt securities. The average exchange contracts and purchases currency options to hedge yields of municipal securities held at December 31, 2002 and the foreign currency exposures of forecasted future royalty December 31, 2001 were 1.85% and 3.19%, respectively. payments from, and net investments in, associated companies. The Company generally hedges forecasted transactions over The Company’s investments in marketable equity securities are a period of twelve months or less. held for an indefinite period. Application of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity On the date a derivative contract is entered into, the Company Securities,” resulted in unrealized holding gains of $15,681 at designates the derivative as either (1) a hedge of a recognized December 31, 2002 and $21,912 at December 31, 2001. asset or liability (a fair value hedge), (2) a hedge of a forecasted Unrealized holding gains, net of the related tax effect, of $10,193 transaction (a cash flow hedge), or (3) a hedge of a net and $14,274 at December 31, 2002 and 2001, respectively, are investment in a foreign operation (a net investment hedge). included as components of Accumulated Other Comprehensive The Company formally documents its hedge relationships, Income in stockholders’ equity. including identification of the hedging instruments and the hedged items, as well as its risk management objectives and DEFERRED CHARGES AND OTHER ASSETS strategies for undertaking the hedge transaction. This process Deferred charges and other assets included prepaid pension includes linking derivatives that are designated as hedges assets of $82,200 and $13,700 and deferred compensation assets to specific assets, liabilities or forecasted transactions. The of approximately $47,900 and $32,400 at December 31, 2002 and Company also formally assesses both at inception and at least 2001, respectively. quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes ACCRUED EXPENSES in the fair value or cash flows of the hedged item. If it is Accrued expenses at December 31, 2002 and 2001 included determined that a derivative ceases to be a highly effective $55,160 and $41,725 of payroll expenses, respectively. hedge, the Company discontinues hedge accounting.
For fair value hedges, the effective portion of the changes in LINE OF CREDIT the fair value of the derivative, along with the gain or loss on In September 2002, the Company renewed its $100 million, the hedged item that is attributable to the hedged risk, are unsecured, line of credit. There were no borrowings under this recorded in earnings. For cash flow hedges, the effective portion line during 2002. Upon drawing on the line of credit, the of the changes in the fair value of a derivative is recorded in Company has the option to elect a fixed or floating interest rate. Accumulated Other Comprehensive Income and reclassified The line of credit expires in September 2003. into earnings in the same period or periods during which the
32 hedged transaction affects earnings, generally within the next During 2002, 2001 and 2000, the Company purchased 483 twelve months. For net investment hedges, the effective portion shares, 704 shares and 3,535 shares at an aggregate price of of the change in the fair value of derivatives used as a net $25,504, $34,652, and $131,765, respectively, under the Board of investment hedge of a foreign operation is recorded in Foreign Director authorizations. No shares were repurchased prior to Currency Translation Adjustment. 1999 under the 1993 authority.
The ineffective portion of the change in fair value of any In May 2001, the Company’s Board of Directors approved a derivative designated as a hedge is immediately recognized Stockholder Rights Plan. Under the Rights Plan, each holder in earnings. Ineffectiveness recognized during 2002 and 2001 of Common Stock and Class B Common Stock at the close of was immaterial. business on June 6, 2001, automatically received a distribution
At December 31, 2002, open foreign exchange contracts for a of one Right for each share of Common Stock or Class B number of currencies, primarily the Euro, British pounds and Common Stock held. Each Right entitles the holder to purchase U.S. dollars, maturing at various dates through December 2003, one one-thousandth of a share of Series A Junior Participating had an aggregate notional amount of $304,937. The notional Preferred Stock for $250. The Rights will trade along with, and amount of open foreign exchange contracts at December 31, not separately from, the shares of Common Stock and Class B 2001 aggregated $77,108. The fair values of open foreign Common Stock unless they become exercisable. The Rights exchange contracts and currency options, as determined by bank become exercisable, and they will separate, become tradable, quotes, were a $2,328 loss recorded in current liabilities and a and entitle stockholders to buy common stock if any person or $41 gain recorded in other current assets at December 31, 2002 group (“Acquiring Person”) becomes the beneficial owner of, or and 2001, respectively. announces a tender or exchange offer for, 15% or more of the Company’s Common Stock. In such event, all Rights, except for Fair Value of Other Financial Instruments those held by the Acquiring Person, become Rights to purchase $500 worth of Common Stock for $250, unless redeemed by the The carrying amount of cash and cash equivalents, accounts Board of Directors. In case of a subsequent merger or other receivable, and accounts payable approximate fair value. acquisition of the Company after the Rights become exercisable, Marketable equity securities are carried at fair value. holders of Rights other than the Acquiring Person may purchase COMMON STOCK shares of the acquiring entity at a 50% discount. The Rights will expire on June 6, 2011, unless redeemed earlier, or renewed by In addition to its Common Stock, the Company has Class B the Company’s Board of Directors. Common Stock outstanding. Each share of Class B Common Stock has ten votes, is restricted as to transfer or other At December 31, 2002, there were authorized 20 million shares disposition, and convertible at any time into one share of of preferred stock with no par value, of which 1 million Series A Common Stock. Junior Participating Preferred shares were reserved for issuance upon exercise of the Rights. Additional paid-in capital primarily represents the excess of fair market value of Common Stock issued from treasury on the date the shares of stock were awarded over the average acquisition cost of the shares.
Treasury Stock may be acquired for the Company’s Management Incentive Plan (MIP) or under the Share Repurchase Program resolution adopted by the Board of Directors. On August 18, 1993, the Board of Directors authorized a Share Repurchase Program to purchase up to $100,000 of shares in the open market. On October 27, 1999, and October 25, 2000, the Company’s Board of Directors authorized additional share repurchases of $200,000 and $100,000, respectively.
33 STOCK-BASED COMPENSATION PLANS The status of the Company’s Stock Option program is summarized as follows: On March 5, 1997, stockholders approved the Company’s MIP, Weighted- as amended by the stockholders on March 5, 2002. The MIP Number of Average was designed to provide key employees the opportunity to Shares Exercise Price participate in the long-term growth and profitability of the Outstanding at December 31, 1999 1,078,000 $ 43.01 Company through cash and equity-based incentives. Granted 1,657,000 37.53 The MIP authorizes the granting of up to 20,000 shares of the Exercised — — Company’s new or reissued Common Stock. In accordance Cancelled (36,000) 40.27 Outstanding at December 31, 2000 2,699,000 $ 39.68 with the MIP, shares of Wrigley stock or deferral share units Granted 2,063,700 48.20 may be granted under the Wrigley Stock Option program or Exercised (59,250) 38.99 awarded under the Long-Term Stock Grant and Stock Award Cancelled (56,750) 41.67 programs. Deferral share units are also awarded to non-employee Outstanding at December 31, 2001 4,646,700 $ 43.45 directors. Options outstanding have been granted at prices Granted 2,005,000 57.01 which are equal to the fair market value of the stock on the date Exercised (316,425) 40.99 of grant. In general, options vest over a four-year period and Cancelled (58,950) 48.77 expire ten years from the date of grant. Outstanding at December 31, 2002 6,276,325 $ 47.85
The following table summarizes key information about stock options at December 31, 2002:
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS Weighted-Average Weighted- Weighted- Range of Remaining Average Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price $32.03 40,000 7.3 32.03 40,000 32.03 $36.81 - 43.78 2,248,875 7.1 39.74 1,328,188 40.24 $45.28 - 51.22 2,059,450 8.5 48.23 528,180 48.04 $52.55 - 58.14 1,928,000 9.4 57.24 — —
As the exercise price equaled the fair market value on the date The table below summarizes the key assumptions used to of grant, no compensation expense has been recognized for calculate the fair value:
the Wrigley Stock Option program. The impact to net earnings Interest Dividend Expected Expected and earnings per share had compensation expense for the Rate Yield Volatility Life Company’s stock-based compensation plans been determined 2002 4.86% 1.44% 22.3% 6 years 2001 5.85% 1.56% 23.8% 6 years based on fair value, consistent with SFAS No. 123, is reflected in 2000 4.75% 1.60% 24.6% 6 years the Summary of Significant Accounting Policies note on page 31.
In determining compensation expense under SFAS No. 123, the The fair value of other stock-based compensation plans fair value of each option on the date of grant is estimated using calculated in accordance with SFAS No. 123 was not significantly the Black-Scholes option-pricing model. The weighted average different from the amounts reported under APB No. 25. fair value of each option granted using the model was $15.61, $13.98, and $11.59 in 2002, 2001 and 2000, respectively.
34 INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and Income taxes are based on pre-tax earnings which are liabilities for financial reporting purposes and the amounts distributed geographically as follows: used for income tax purposes. 2002 2001 2000 Components of net deferred tax balances are as follows: Domestic $ 161,646 130,140 139,086 Foreign 421,775 397,226 340,226 2002 2001 $ 583,421 527,366 479,312 Accrued Compensation, Pension and Post-retirement Benefits $ 15,493 26,419 Depreciation (28,888) (21,898) Reconciliation of the provision for income taxes computed at Unrealized Holding Gains (5,488) (7,638) the U.S. Federal statutory rate of 35% for 2002, 2001, and 2000 to All Other -- Net (2,361) (317) the reported provision for income taxes is as follows: Net Deferred Tax Liability $ (21,244) (3,434) 2002 2001 2000 Provision at U.S.Federal Balance sheet classifications of deferred taxes are as follows: Statutory Rate $ 204,197 184,578 167,759 State Taxes -- Net 4,922 4,401 5,351 2002 2001 Foreign Tax Rates (27,045) (23,832) (19,546) Deferred Tax Asset Tax Credits Current $ 19,560 14,846 (principally foreign) (2,438) (1,400) (1,675) Noncurrent 33,000 29,605 Other -- Net 2,260 633 (1,519) Deferred Tax Liability $ 181,896 164,380 150,370 Current (3,215) (1,455) Noncurrent (70,589) (46,430) The components of the provision for income taxes for 2002, Net Deferred Tax Liability $ (21,244) (3,434) 2001, and 2000 are:
Current Deferred Total Applicable U.S. income and foreign withholding taxes have 2002 not been provided on approximately $631,920 of undistributed Federal $ 21,401 16,113 37,514 earnings of international associated companies at December 31, Foreign 135,901 908 136,809 2002. These earnings are considered to be permanently invested State 6,786 787 7,573 and, under the tax laws, are not subject to such taxes until $ 164,088 17,808 181,896 distributed as dividends. Tax on such potential distributions 2001 would be substantially offset by foreign tax credits. If the earnings Federal $ 30,142 2,384 32,526 were not considered permanently invested, approximately Foreign 121,137 2,704 123,841 $99,879 of deferred income taxes would be provided. State 6,770 1,243 8,013 $ 158,049 6,331 164,380 2000 Federal $ 30,704 961 31,665 Foreign 109,184 2,170 111,354 State 7,954 (603) 7,351 $ 147,842 2,528 150,370
35 PENSION AND OTHER POST-RETIREMENT PLANS thereunder, such excess benefits may be paid from the Company’s non-qualified, unfunded, noncontributory The Company maintains non-contributory defined benefit supplemental retirement plan. pension plans covering substantially all of its employees in the U.S. and at certain international associated companies. Domestic plan assets consist primarily of marketable equity Retirement benefits are a function of years of service and and fixed income securities. Plan assets for international the level of compensation generally for the highest three associated companies consist primarily of marketable consecutive salary years occurring within ten years prior to equity and fixed income securities, and contracts with an employee’s retirement date depending on the plan. The insurance companies.
Company’s policy is to fund within ERISA or other statutory In addition, the Company maintains certain post-retirement limits to provide benefits earned to date and expected to plans which provide limited health care benefits on a be earned in the future. contributory basis and life insurance benefits in the U.S. and To the extent that an individual’s annual pension benefit under at certain international associated companies. The cost the plan exceeds the limitations imposed by the Internal of these post-retirement benefits is provided during the Revenue Code of 1986, as amended, and the regulations employee’s active working career.
The funded status of the defined benefit plans and post-retirement benefit plans were as follows:
Defined Benefit Plans Post-Retirement Benefit Plans 2002 2001 2002 2001 Change in Benefit Obligation Benefit Obligation at Beginning of Year $ 385,500 342,000 $ 33,600 27,100 Service Cost 13,600 11,300 1,400 1,000 Interest Cost 27,200 25,000 2,600 2,100 Plan Participants’ Contributions 400 300 — — Actuarial Loss 18,100 28,100 6,300 5,600 Foreign Currency Exchange 8,900 (2,900) — — Other (200) 300 — — Benefits Paid (18,800) (18,600) (2,400) (2,200) Benefit Obligation at End of Year $ 434,700 385,500 $ 41,500 33,600 Change in Plan Assets Fair Value at Beginning of Year $ 343,600 370,900 $ 13,700 13,000 Actual Return on Plan Assets (30,400) (13,000) (3,000) (1,900) Employer Contribution 77,700 8,100 11,000 4,800 Plan Participants’ Contributions 400 — — — Foreign Currency Exchange 8,300 (3,600) — — Other (400) (200) — — Benefits Paid (18,800) (18,600) (2,400) (2,200) Fair Value at End of Year $ 380,400 343,600 $ 19,300 13,700 Funded (Underfunded) Status of the Plan $ (54,300) (41,900) $ (22,200) (19,900) Unrecognized Net Actuarial Loss 127,900 47,200 16,600 6,500 Unrecognized Prior Service Costs 5,100 5,500 — — Unrecognized Transition Asset (2,800) (3,400) — — Prepaid (Accrued) Benefit Cost $ 75,900 7,400 $ (5,600) (13,400)
36 The following table provides amounts recognized in the balance sheet as of December 31:
Defined Benefit Plans Post-Retirement Benefit Plans 2002 2001 2002 2001 Prepaid Benefit Cost $ 82,200 13,700 $ — — Accrued Benefit Liability (6,300) (6,300) (5,600) (13,400) Net Amount Recognized $ 75,900 7,400 $ (5,600) (13,400)
The Company’s qualified plans have plan assets in excess of the accumulated benefit obligation. The Company’s non-qualified, unfunded, noncontributory supplemental retirement plan has a projected benefit obligation of $6,000 and $5,800 and an accumulated benefit obligation of $5,200 and $5,500 at December 31, 2002 and 2001, respectively.
The components of net pension and net periodic post-retirement benefit costs are as follows:
Defined Benefit Plans Post-Retirement Benefit Plans 2002 2001 2000 2002 2001 2000 Service Cost $ 13,600 11,300 11,100 $ 1,400 1,000 900 Interest Cost 27,200 25,000 24,200 2,600 2,100 2,000 Expected Return on Plan Assets (29,600) (31,700) (33,200) (1,200) (1,100) (1,200) Amortization of Unrecognized Transition Assets (700) (900) (900) — —— Prior Service Costs Recognized 600 1,700 1,700 — —— Recognized Net Actuarial Loss/(Gain) 700 — (1,900) 400 (200) (200) Other Pension Plans 4,700 3,600 4,000 — —— Net Periodic Benefit Cost $ 16,500 9,000 5,000 $ 3,200 1,800 1,500
Assumptions at the end of the year for the Company’s defined benefit and post-retirement benefit plans are as follows:
Defined Benefit Plans Post-Retirement Benefit Plans 2002 2001 2000 2002 2001 2000 Discount Rate Domestic 6.75% 7.25% 7.75% 6.75% 7.25% 7.75% Foreign 5.50-6.75% 6.00-6.75% 6.00-7.25% 6.75% 7.25% 7.75% Long-term Rates of Return on Plan Assets Domestic 9.25% 9.25% 9.25% 9.25% 9.00% 9.00% Foreign 6.50-7.50% 6.50-7.50% 6.50-7.50% — — — Rates of Increase in Compensation Levels Domestic 4.25% 4.75% 4.75% — — — Foreign 3.00-4.00% 3.00-4.00% 3.00-4.00% — — —
A 10% annual rate of increase in the per capita cost of In addition to the defined benefit plans and post-retirement covered post-retirement benefits was assumed for 2003. The benefit plans described above, the Company also sponsors rate was assumed to decrease gradually to 5% for 2008 defined contribution plans within the U.S. and at certain and remain at that level thereafter. international associated companies. The plans cover full time
Increasing or decreasing the health care trend rates by one employees and provide for contributions between 3% and 5% percentage point in each year would have the following effect: of salary. The Company’s expense for the defined contribution plans totaled $5,694, $4,852, and $4,535 in 2002, 2001, and 1% INCREASE 1% DECREASE 2000, respectively. Effect on Post-retirement Benefit Obligation 3,200 (2,800) Additionally, on January 1, 2002, the Company formed an Effect on Total of Service and Interest Cost Components 400 (400) Employee Stock Ownership Plan (ESOP) within the defined
37 contribution plan for U.S. based employees. The primary Assets 2002 2001 2000 purpose of the ESOP is to acquire and hold Wrigley shares Americas, principally U.S. $ 878,232 700,692 547,954 credited to Wrigley Savings Plan participants’ accounts as a EMEAI, principally Europe 774,700 667,578 623,656 result of employee contributions and Company matching Asia 199,847 178,780 154,009 program contributions. Company matching program Pacific 49,039 39,920 42,612 contributions may be in the form of cash, treasury shares or All Other 61,966 74,497 81,450 authorized, unissued shares. The ESOP is a non-leveraged plan Assets Used in Operating and all shares held are allocated to plan participants. Dividends Activities 1,963,784 1,661,467 1,449,681 on Company shares held by the ESOP are charged to retained Corporate 144,512 116,326 125,059 earnings. The number of shares held by the ESOP at Total Assets $ 2,108,296 1,777,793 1,574,740 December 31, 2002, including those shares transferred at the formation of the ESOP, totaled 5,419. The formation of the Assets are categorized based upon the geographic segment ESOP had no effect on the Company’s net earnings or earnings where they reside. Assets in “Corporate” consist principally of per share. short-term investments and marketable equity securities which are held by the corporate office, as well as certain fixed assets. SEGMENT INFORMATION Depreciation Expense 2002 2001 2000 Management organizes the Company’s chewing gum and other Americas, principally U.S. $ 21,933 18,778 14,337 confectionery business based on geographic regions. EMEAI, Information by geographic region at December 31, 2002, 2001, principally Europe 36,563 30,341 26,912 Asia 9,305 7,658 6,661 and 2000 and for the years then ended is as follows: Pacific 1,695 1,167 1,149 Net Sales 2002 2001 2000 All Other 2,630 2,487 1,874 Americas, principally U.S. $ 1,131,703 1,001,074 895,299 Depreciation Expense Related EMEAI, to Operating Activities 72,126 60,431 50,933 principally Europe 1,191,347 1,006,680 902,169 Corporate 13,442 7,895 6,947 Asia 321,914 297,263 241,892 Total Depreciation Expense $ 85,568 68,326 57,880 Pacific 83,110 75,201 71,363
All Other 18,244 21,201 15,391 Depreciation expense is categorized consistently with the Net Sales $ 2,746,318 2,401,419 2,126,114 geographic region where the asset resides.
Capital Expenditures 2002 2001 2000 “All Other” net sales consist primarily of sales of gumbase and Americas, principally U.S. $ 68,991 94,808 41,688 sales for Wrigley Healthcare. EMEAI, principally Europe 74,098 56,340 39,762 Operating Income 2002 2001 2000 Asia 17,108 16,266 11,635 Americas, principally U.S. $ 281,999 261,177 220,850 Pacific 5,078 6,392 2,768 EMEAI, principally Europe 346,189 304,343 249,384 All Other 4,721 4,407 1,252 Asia 89,211 77,453 68,165 Capital Expenditures for Operating Activities 169,996 178,213 97,105 Pacific 21,602 24,324 22,453 Corporate 49,802 5,703 28,942 All Other (153,927) (153,941) (97,609) Gross Capital Total Operating Income $ 585,074 513,356 463,243 Expenditures 219,798 183,916 126,047 Intersegment Asset “All Other” operating income includes corporate expenses Transfers (2,926) (2,156) (979) Net Capital Expenditures $ 216,872 181,760 125,068 such as costs related to research and development, information systems and certain administrative functions and operating Capital expenditures are categorized based upon the geographic results for Wrigley Healthcare. In 2002, “All Other” operating segment where the expenditure occurred. Intersegment asset income also includes certain costs connected with the transfers are primarily due to sales between production facilities exploration of a business combination with Hershey Foods worldwide. Asset sales are typically transferred at net book value. Corporation.
38 ELECTED OFFICERS
William Wrigley, Jr. Howard Malovany President and Vice President, Secretary and Chief Executive Officer General Counsel
Peter R. Hempstead Patrick D. Mitchell Senior Vice President — International Vice President — Procurement
Surinder Kumar Kathryn E. Olson Chief Innovation Officer Vice President — U.S. Consumer Marketing Gary E. McCullough Senior Vice President — Americas Jon Orving Vice President — Dushan Petrovich International and Managing Director — Senior Vice President — North Region People, Learning and Development Stefan Pfander Darrell R. Splithoff Vice President — International and Senior Vice President — Managing Director — EMEAI Supply Chain & Corporate Development Wm. M. Piet Ronald V. Waters Vice President — Corporate Affairs Senior Vice President and Chief Financial Officer Alan J. Schneider Vice President and Treasurer Donald E. Balster Vice President — Ralph P. Scozzafava Worldwide Manufacturing Vice President — General Manager — U.S. Vincent C. Bonica Vice President — Michael F. Wong Organizational Development Vice President — International and Managing Director — Asia Reuben Gamoran Vice President and Controller A. Rory Finlay Senior Director — Global Branding Donagh Herlihy Vice President and Philip C. Johnson Chief Information Officer Senior Director — Benefits & Compensation Shaun Kim Vice President — Worldwide Engineering Daniela Zaluda Senior Director
39 BOARD OF DIRECTORS
COMMITTEES OF THE WILLIAM WRIGLEY, JR. Director of the Company since 1988 BOARD OF DIRECTORS Joined the Wm. Wrigley Jr. Company in 1985 President & Chief Executive Officer since 1999 Senior Vice President (1999) Audit Vice President (1991-98)
Richard K. Smucker JOHN F. BARD Director of the Company since 1999 Chairman Executive Vice President, Wm. Wrigley Jr. Company (1999-2000) Senior Vice President, Wm. Wrigley Jr. Company (1991-99) Howard B. Bernick Director, Weight Watchers International, since 2002 HOWARD B. BERNICK Melinda R. Rich Director of the Company since 2001 Joined Alberto-Culver Company in 1977 President and Chief Executive Officer since 1994, and Director since 1986 Alex Shumate THOMAS A. KNOWLTON Director of the Company since 1996 Dean-Faculty of Business, Ryerson University, since 2000 Compensation Executive Vice President, Kellogg Company (1992-98) President, Kellogg North America (1994-98) Thomas A. Knowlton PENNY PRITZKER Chairman Director of the Company since 1994 Chairman, Classic Residence by Hyatt, since 1987 Howard B. Bernick President, Pritzker Realty Group L.P., since 1991 Director, Hyatt Corporation, since 1999 Director, Hyatt International Corporation, since 1999 Steven B. Sample MELINDA R. RICH Director of the Company since 1999 Alex Shumate Joined Rich Products Corp. in 1986, its Executive Vice President of Innovation since 1997 and Director since 1998 President, Rich Entertainment Group, since 1994 Corporate Governance Director, M & T Bank Corp. (Buffalo, NY), since 1994 STEVEN B. SAMPLE Penny Pritzker Director of the Company since 1997 President, University of Southern California, since 1991 Chairman President, State University of New York, Buffalo (1982-91) Director, Unova, Inc., since 1997 Melinda R. Rich Director, AMCAP Fund, Inc., since 2000 Director, American Mutual Fund, Inc., since 2000 Director, Advanced Bionics Corporation, since 2000 Steven B. Sample ALEX SHUMATE Director of the Company since 1998 Joined law firm of Squire, Sanders & Dempsey in 1988 and Managing Partner of its Columbus, Ohio Office since 1991 Director, The Limited, Inc., since 1996 Director, Nationwide Financial Services, Inc., since 2002 RICHARD K. SMUCKER Director of the Company since 1988 Joined The J. M. Smucker Company in 1972, its President since 1987, Director since 1975, and Co-CEO since 2001 Director, Sherwin-Williams Company, since 1991
Left to right: Thomas A. Knowlton, Howard B.Bernick, Penny Pritzker, William Wrigley, Jr., Melinda R. Rich, Richard K. Smucker, John F. Bard, Alex Shumate, Steven B. Sample.
40 STOCKHOLDER INFORMATION
STOCKHOLDER INQUIRIES DIVIDEND REINVESTMENT PLAN
Any inquiries about your Wrigley stockholdings should The Dividend Reinvestment Plan (DRP) is open to all be directed to: stockholders of record. The DRP is administered by EquiServe Trust Company, N.A. and uses cash dividends Stockholder Relations Wm. Wrigley Jr. Company on both Common Stock and Class B Common Stock, along 410 North Michigan Avenue with voluntary cash contributions, to purchase additional Chicago, IL 60611 1-800-874-0474 shares of Common Stock. Cash contributions can be made monthly for a minimum of $50 and a maximum of $5,000. You can access your Wrigley stock account information All shares purchased through the DRP are retained via the Internet at the following address — in a DRP account, so there are no certificates that could gateway.equiserve.com. be lost, misplaced, or stolen. Additionally, once a DRP Additional information about the Wrigley Company can account is established, a participant can deposit any be found on the Internet at www.wrigley.com. Wrigley stock certificates held outside the DRP into the
CAPITAL STOCK account for safekeeping.
Common Stock of the Wm. Wrigley Jr. Company (WWY) Just under 30,000 or 74% of the Company’s stockholders is traded on the New York and Chicago Stock Exchanges. of record currently participate in the DRP. A brochure
Class B Common Stock, issued to stockholders of record fully describing the DRP and its enrollment procedure on April 4, 1986, has restricted transferability and is not is available upon request. traded on the New York Stock Exchange. It is at all times CONSOLIDATION OF MULTIPLE ACCOUNTS convertible, on a share-for-share basis, into Common To avoid receiving duplicate mailings, stockholders Stock and once converted is freely transferable and publicly with more than one Wrigley account may want to traded. Class B Common Stock also has the same rights consolidate their shares. For more information, please as Common Stock with respect to cash dividends and contact the Company. treatment upon liquidation. ELECTRONIC RECEIPT OF PROXY MATERIALS DIVIDENDS AND PROXY VOTING Regular quarterly dividends are paid on or about the If you are a stockholder who would like to receive your first business day of February, May, August, and November copies of the annual report and proxy statement via the with the record date for each payment falling on or about Internet in the future, you need to complete an online the 15th of the prior month. consent form.
DIRECT DIVIDEND DEPOSIT SERVICE Stockholders of record can go directly to the EquiServe The Direct Dividend Deposit Service allows stockholders form at — www.econsent.com/wwy — or link to the to receive cash dividends through electronic deposits into form through the Wrigley web site. their checking or savings account.
41 “Street name” stockholders, holding their shares in a bank TRANSFER AGENT AND REGISTRAR or brokerage account, should go to the Wrigley web site — EquiServe Trust Company, N.A. P. O. Box 43069 www.wrigley.com — and complete the form they find under Providence, RI 02940-3069 Stockholder Services in the Investor Information section. Inside the U.S. — 1-800-446-2617 Outside the U.S. — +1-781-575-2723 STOCK CERTIFICATES TDD/TTY for hearing impaired — 1-800-952-9245 Internet: www.equiserve.com For security and tax purposes, stockholders should keep a record of all of their stock certificates. The record should COMPANY PUBLICATIONS be kept in a separate place from the certificates themselves The Company’s 2002 annual report to the Securities and Exchange Commission on Form 10-K is expected and should contain the following information for each to be available on or about February 23, 2003. certificate: exact registration, number of shares, certificate Requests for this publication should be addressed to number, date of certificate and the original cost of the Stockholder Relations at the main office of the Company. shares. If a stock certificate is lost or stolen, notification It is also available for review at our Internet home page should be sent to the Company immediately. The transfer (www.wrigley.com). agent has two requirements to be met before a new certificate will be issued — a completed affidavit and payment for an indemnity bond based on the current market value of the lost or stolen stock. The replacement of a certificate will take about seven to ten days. Even if a certificate is lost or stolen, the stockholder will continue to receive dividends on those shares while the new certificate is being issued.
A transfer or reregistration of stock is required when the shares are sold or when there is any change in name or ownership of the stock. To be accepted for transfer or reregistration, the stockholder’s signature on the certificate or stock power must receive a Medallion Signature Guarantee by a qualified financial institution that participates in the Medallion Guarantee program. A verification by a notary public is not sufficient. Anytime a certificate is mailed, it should be sent registered mail, return receipt requested.
42 CORPORATE FACILITIES AND PRINCIPAL ASSOCIATED COMPANIES
CORPORATE HEADQUARTERS International The Wrigley Company Wrigley Building The Wrigley Company Pty. Limited* (East Africa) Limited* 410 North Michigan Avenue Sydney, Australia Nairobi, Kenya Chicago, Illinois 60611 Wrigley Austria Ges.m.b.H. The Wrigley Company Salzburg, Austria (Malaysia) Sdn. Bhd. Kuala Lumpur, Malaysia PRINCIPAL ASSOCIATED COMPANIES Wrigley Bulgaria EOOD Domestic Sofia, Bulgaria The Wrigley Company (N.Z.) Limited Auckland, New Zealand Wrigley Manufacturing Company, LLC Wrigley Canada* Chicago, Illinois 60609* Don Mills, Ontario, Canada Wrigley Scandinavia AS Gainesville, Georgia 30542* Oslo, Norway Phoenix, Arizona 85004* Wrigley Chewing Gum Company Ltd.* Guangzhou, Guangdong, The Wrigley Company (P.N.G.) Ltd. Amurol Confections Company* Peoples Republic of China Port Moresby, Papua New Guinea Yorkville, Illinois 60560 Wrigley Croatia d.o.o. Wrigley Philippines, Inc.* Four-Ten Corporation Zagreb, Croatia Antipolo City, Philippines Chicago, Illinois 60611 Wrigley s.r.o. Wrigley Poland Sp. zo.o.* Wrigley Sales Company Prague, Czech Republic Poznan, Poland Chicago, Illinois 60611 The Wrigley Company Limited* Wrigley Romania Produse L.A. Dreyfus Company* Plymouth, England, U.K. Zaharoase SRL Edison, New Jersey 08820 Bucharest, Romania Oy Wrigley Scandinavia Ab Northwestern Flavors, LLC* Turku, Finland OOO Wrigley West Chicago, Illinois 60185 Moscow, Russia Wrigley France S.N.C.* St. Petersburg, Russia* Biesheim, France Wrigley Slovakia s.r.o. Wrigley G.m.b.H. Banska Bystrica, Slovakia Munich, Germany Wrigley d.o.o. Wrigley B.V. Ljubljana, Slovenia Bussum, Holland Wrigley Co., S.A. The Wrigley Company (H.K.) Limited Santa Cruz de Tenerife Hong Kong Canary Islands, Spain
Wrigley Hungaria, Kft. Wrigley Scandinavia AB Budapest, Hungary Stockholm, Sweden
Wrigley India Private Limited* Wrigley Taiwan Limited* Bangalore, Karnataka, India Taipei, Taiwan, R.O.C.
Wrigley Israel Ltd. Wrigley Ukraine Herzeliya-Pituach, Israel Kiev, Ukraine TzoV
Wrigley & Company Ltd., Japan Wrigley Middle East, FZCO Tokyo, Japan Dubai, United Arab Emirates
*Denotes production facility
43 The Wrigley Company markets chewing gum, bubble gum, and confectionery products around the world.
DOMESTIC BRANDS
Big Red Juicy Fruit Doublemint Orbit Eclipse Orbit White Eclipse Flash Winterfresh Extra Winterfresh Thin Ice Freedent Wrigley’s Spearmint
INTERNATIONAL BRANDS
Airwaves Extra White Alpine Freedent Arrowmint Freedent for Kids Big Boy Freedent White Big G Hubba Bubba Big Red Ice White Cool Air Juicy Fruit Cool Crunch Orbit Doublemint Orbit Drops Dulce 16 Orbit for Kids Eclipse Orbit White Excel P.K. Extra Winterfresh Extra Thin Ice Wrigley’s Spearmint Extra for Kids X-Cite
Amurol Confections Co., a wholly owned subsidiary of the Wrigley Company, makes a wide range of youth-oriented and adult gum and confectionery products, which are marketed in the U.S. and internationally.
AMUROL BRANDS
Big League Chew Bubble Tape Hubba Bubba Sweet Roll Blasters Bug City Santa’s Coal Bubble Beeper Cluckers Squeeze Pop Bubble Cane Dragon Fire Velamints Bubble Jug Everest Fresh Sqeezed
The brands listed above are trademarks either owned by the Wm. Wrigley Jr. Company or Amurol Confections Co., or used under license from the trademark owner.
44
Wm. Wrigley Jr. Company
Wrigley Building 410 North Michigan Avenue Chicago, Illinois 60611