WHITMAN CORPORATION
FORM 10-Q
FIRST QUARTER 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-15019
WHITMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-6167838
-------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3501 Algonquin Road, Rolling Meadows, Illinois 60008
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 818-5000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /x/ NO / /
As of April 29, 2000, the Registrant had 136,309,667 outstanding shares
(excluding treasury shares) of common stock, without par value, the Registrant's
only class of common stock.
<PAGE>
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
1
<PAGE>
WHITMAN CORPORATON
FORM 10-Q
FIRST QUARTER 2000
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)
<TABLE>
<CAPTION>
First Quarter
--------------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales $ 548.9 $ 370.3
Cost of goods sold 319.7 219.7
---------- ----------
Gross profit 229.2 150.6
Selling, general and administrative expenses 181.5 115.5
Amortization expense 10.1 3.9
---------- ----------
Operating income 37.6 31.2
Interest expense, net (20.3) (11.3)
Other income, net (Notes 4 and 5) 2.1 6.6
---------- ----------
Income before income taxes 19.4 26.5
Income taxes 9.2 8.3
---------- ----------
Income before minority interest 10.2 18.2
Minority interest -- 3.9
---------- ----------
Net income $ 10.2 $ 14.3
========== ==========
Weighted average common shares:
Basic 138.1 96.1
Incremental effect of stock options 0.4 1.5
---------- ----------
Diluted 138.5 97.6
========== ==========
Net income per share - basic $ 0.07 $ 0.15
========== ==========
Net income per share - diluted $ 0.07 $ 0.15
========== ==========
Cash dividends per share $ 0.04 $ 0.05
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
FIRST QUARTER 2000
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
End of End of
First Quarter Fiscal Year
2000 1999
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 111.9 $ 114.5
Receivables 245.6 265.1
Inventories 115.7 112.1
Other current assets 55.4 46.3
------------ ------------
Total current assets 528.6 538.0
Investments 61.3 47.9
Property (at cost) 1,397.0 1,384.5
Accumulated depreciation and amortization (577.9) (552.8)
------------ ------------
Net property 819.1 831.7
------------ ------------
Intangible assets, net 1,412.6 1,416.3
Other assets 34.2 30.4
------------ ------------
Total assets $ 2,855.8 $ 2,864.3
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 399.3 $ 373.3
Accounts and dividends payable 190.7 192.2
Other current liabilities 163.2 173.6
------------ ------------
Total current liabilities 753.2 739.1
------------ ------------
Long-term debt 808.6 809.0
Deferred income taxes 77.4 71.1
Other liabilities 96.0 102.9
Shareholders' equity:
Preferred stock ($0.01 par value, 12.5 million shares authorized;
no shares issued) -- --
Common stock ($0.01 par value, 350.0 million shares authorized;
167.3 million shares issued) 1,634.2 1,634.4
Retained income 81.3 76.7
Accumulated other comprehensive loss:
Cumulative translation adjustment (28.5) (24.4)
Unrealized investment gain 10.5 2.1
------------ ------------
Accumulated other comprehensive loss (18.0) (22.3)
------------ ------------
Treasury stock (30.7 million shares - 2000 and
28.2 million shares - 1999) (576.9) (546.6)
------------ ------------
Total shareholders' equity 1,120.6 1,142.2
------------ ------------
Total liabilities and shareholders' equity $ 2,855.8 $ 2,864.3
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
FIRST QUARTER 2000
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
<TABLE>
<CAPTION>
First Quarter
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 10.2 $ 14.3
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 43.1 20.8
Deferred income taxes (1.1) (3.2)
Gain on sale of franchises, net of tax (1.4) (8.0)
Cash outlays related to special charges (10.0) (3.9)
Other 0.2 3.1
Changes in assets and liabilities, exclusive of acquisitions:
Decrease in receivables 19.1 3.1
(Increase) decrease in inventories (3.7) 0.9
(Decrease) increase in payables (1.5) 15.7
Net change in other assets and liabilities (16.2) (38.5)
----------- -----------
Net cash provided by continuing operations 38.7 4.3
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of franchises, net of cash divested 2.5 113.6
Capital investments, net (34.3) (36.1)
Proceeds from investments -- 3.4
----------- -----------
Net cash (used in) provided by investing activities (31.8) 80.9
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt 25.7 126.5
Long-term debt repayments (0.3) --
Cash dividends -- (4.6)
Treasury stock purchases (31.5) (230.0)
Issuance of common stock 1.0 1.1
----------- -----------
Net cash used in financing activities (5.1) (107.0)
----------- -----------
Net cash used in discontinued operations (4.1) (3.1)
Effect of exchange rate changes on cash and equivalents (0.3) (0.4)
----------- -----------
Change in cash and equivalents (2.6) (25.3)
Cash and equivalents at beginning of quarter 114.5 147.6
----------- -----------
Cash and equivalents at end of quarter $ 111.9 $ 122.3
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
FIRST QUARTER 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein have been
prepared by Whitman Corporation ("Whitman" or the "Company") without
audit. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures made are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 1999
Annual Report on Form 10-K. In the opinion of management, the information
furnished herein reflects all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair statement of results for the
interim periods presented. Certain prior year amounts have been
reclassified to conform to the current year presentation.
2. Through its principal operating company, Pepsi-Cola General Bottlers, Inc.
("Pepsi General"), the Company produces, distributes, sells and markets
carbonated and non-carbonated Pepsi-Cola beverages and a variety of other
non-alcoholic beverages in the United States and Central Europe. Pepsi
General accounts for about 17 percent of all Pepsi-Cola products sold in
the U.S. It serves a significant portion of a ten state region, primarily
in the Midwest, with a population of approximately 35 million people. In
addition, Pepsi General serves a population of approximately 65 million
people in its territories in Poland, Hungary, the Czech Republic and the
Republic of Slovakia. The Company's business is highly seasonal.
3. The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to December 31; fiscal 1999 ended on January 1, 2000. The
Company's first quarters of 2000 and 1999 were based on the thirteen weeks
ended April 1, 2000 and April 3, 1999, respectively.
4. On January 25, 1999, the Company announced that its Board of Directors had
approved a new business relationship with PepsiCo, Inc. ("PepsiCo"). The
new relationship was approved by Whitman shareholders on May 20, 1999 and
is more fully described in the Company's 1999 Annual Report on Form 10-K.
In connection with the new relationship, in the first quarter of 1999, the
Company sold to PepsiCo its operations in Marion, Virginia; Princeton,
West Virginia and the St. Petersburg area of Russia. This sale resulted in
a pretax gain of $11.4 million ($8.0 million after taxes and minority
interest, or eight cents per share), which is included in "Other income,
net" on the Condensed Consolidated Statements of Income.
Whitman acquired certain domestic and Central European territories from
PepsiCo as a result of the new business relationship, which have been
accounted for under the purchase method. Accordingly, the results of
operations of the acquired territories have been included with those of
the Company for periods subsequent to the dates of acquisition.
The pro forma condensed consolidated results of operations presented below
for 2000 and 1999 assume the following:
o The territories described above were sold as of January 1, 1999.
o The domestic and Central European territories were acquired from PepsiCo
as of January 1, 1999.
o The 16 million share repurchase commitment entered into in connection
with the new business relationship was completed as of January 1, 1999.
o The after tax gains from the divestiture of franchise territories in
2000 (see Note 5) and 1999 were excluded.
5
Additionally, the pro forma financial information presented below excludes
an additional week of operating activity in 2000 included in the acquired
domestic territories resulting from conforming them to Whitman's reporting
calendar and $4.5 million of non-recurring charges recorded in the first
quarter of 1999:
First Quarter
---------------------------
2000 1999
---------- ----------
(unaudited and in millions,
except per share data)
Sales $ 535.9 $ 507.4
Net income 7.7 6.2
Net income per share-basic 0.06 0.04
Net income per share-diluted 0.06 0.04
The above pro forma results are for informational purposes only and may
not be indicative of actual results that would have occurred had the new
business relationship with PepsiCo taken place on January 1, 1999.
5. In the first quarter of 2000, the Company sold its operations in the
Baltics. This sale resulted in a gain of $2.6 million ($1.4 million after
taxes), which is reflected in "Other income, net" on the Condensed
Consolidated Statements of Income.
6. The Company's comprehensive income is as follows:
First Quarter
-----------------
2000 1999
------ ------
(in millions)
Net income $ 10.2 $ 14.3
Foreign currency translation adjustment (4.1) (1.2)
Unrealized gains (losses) on securities 8.4 (1.3)
------ ------
Comprehensive income $ 14.5 $ 11.8
====== ======
Unrealized gains (losses) on securities are presented net of tax expense
of $5.0 million in 2000 and a tax benefit of $0.7 million in 1999.
7. Interest expense, net, is comprised of the following:
First Quarter
-----------------
2000 1999
------ ------
(in millions)
Interest expense $(20.8) $(12.0)
Interest income 0.5 0.7
------ ------
Interest expense, net $(20.3) $(11.3)
====== ======
6
8. Net cash provided by operating activities reflected cash payments and
receipts for interest and income taxes as follows:
First Quarter
-----------------
2000 1999
------ ------
(in millions)
Interest paid $ 23.1 $ 20.0
Interest received 0.4 1.4
Income taxes paid, net of refunds 0.6 7.1
9. As of the end of the first quarter of 2000, the components of inventory
were approximately 47 percent comprised of raw materials and supplies and
53 percent comprised of finished goods, which is essentially the same mix
as the end of fiscal year 1999.
10. In the second and third quarters of 1999 and in the third quarter of 1997,
Whitman and Pepsi General recorded special charges for staff reductions
and asset and investment write-downs. The special charges recorded totaled
$27.9 million ($19.0 million after taxes) in 1999 and $49.3 million ($31.6
million after taxes and minority interest) in 1997. A further description
of the charges taken is presented in the Company's 1999 Annual Report on
Form 10-K.
The following table summarizes activity associated with the special
charges (in millions):
<TABLE>
<CAPTION>
1997 1999
Charges Charges Total
------- ------- -------
<S> <C> <C> <C>
Accrued liabilities as of fiscal year end 1999
(all employee-related costs) $ 8.3 $ 4.3 $ 12.6
Expenditures for employee related costs (8.3) (1.7) (10.0)
------- ------- -------
Accrued liabilities at the end of the first quarter of 2000 $ -- $ 2.6 $ 2.6
======= ======= =======
</TABLE>
Employee related costs recorded in the 1999 special charges include
severance payments for management and staff affected by the consolidation
of international headquarters and operations in Poland and management
changes in certain domestic markets. Employee related costs recorded in
the 1997 special charges include severance payments for the management and
staff affected by changes in organizational structure, as well as other
headcount reduction programs. The 1997 charges affected approximately 125
positions at Pepsi General and essentially all employees at Whitman
Corporate. All remaining payments for employee related costs were made
during the first quarter of 2000 to employees affected by the 1997 staff
reductions. The charges recorded in 1999 were related to the elimination
of approximately 310 positions, of which approximately 23 positions are
yet to be eliminated as of the end of the first quarter of 2000.
The accrued liabilities remaining as of the end of the first quarter of
2000 are comprised of deferred severance payments and certain employee
benefits. The Company expects to pay a significant portion of the $2.6
million of employee related costs, using cash from operations, during the
next twelve months; accordingly, such amounts are classified as other
current liabilities.
7
11. The Company continues to be subject to certain indemnification obligations
under agreements with previously sold subsidiaries, including potential
environmental liabilities. There is significant uncertainty in assessing
the Company's share of the potential liability for such claims. The
assessment and determination for cleanup at the various sites involved is
inherently speculative during the early stages, and the Company's share of
related costs is subject to various factors, including possible insurance
recoveries and the allocation of liabilities among many other potentially
responsible and financially viable parties.
At the end of the first quarter of 2000, the Company had accruals of $58.7
million to cover these potential liabilities, including $28.0 million
classified as current liabilities. Such amounts are determined using
estimated undiscounted future cash requirements, and have not been reduced
by potential future insurance recoveries.
The estimated liabilities include expenses for the remediation of
identified sites, payments to third parties for claims and expenses, and
the expenses of on-going evaluations and litigation. The estimates are
based upon the judgments of outside consultants and experts and their
evaluations of the characteristics and parameters of the sites, including
results from field inspections, test borings and water flows. The
estimates are based upon the use of current technology and remediation
techniques, and do not take into consideration any inflationary trends
upon such claims or expenses, nor do they reflect the possible benefits of
continuing improvements in remediation methods. The accruals also do not
provide for any claims for environmental liabilities or other potential
issues which may occur in the future.
The Company has contingent liabilities from various pending claims and
litigation on a number of matters, including indemnification claims under
agreements with previously sold subsidiaries for product liability and
toxic torts. The ultimate liability for these claims cannot be determined.
In the opinion of management, based upon information currently available,
the ultimate resolution of these claims and litigation, including
potential environmental exposures, and considering amounts already
accrued, should not have a material effect on the Company's financial
condition, although amounts recorded in a given period could be material
to the results of operations or cash flows for that period. Existing
environmental liabilities associated with the Company's continuing
operations are not material.
12. Basic earnings per share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per share assume the exercise
of all options which are dilutive, whether exercisable or not. The
dilutive effects of stock options are measured under the treasury stock
method.
Options to purchase 8,855,242 shares and 2,556,300 shares at a
weighted-average price of $17.24 and $22.55 per share that were
outstanding at the end of the first quarter of 2000 and 1999,
respectively, were not included in the computation of diluted EPS because
the exercise price was greater than the average market price of the common
shares during the quarter.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
2000 FIRST QUARTER COMPARED WITH 1999 FIRST QUARTER
Due to the new business relationship with PepsiCo in 1999, which resulted
in the acquisition of significant domestic and Central European territories from
PepsiCo, as well as the sale of certain of the Company's existing operations (as
more fully described in the Company's 1999 Annual Report on Form 10-K), the
Company believes that comparable results provide a better indication of current
operating trends than reported results.
Comparable operating results exclude results of territories sold and
include results of territories acquired from PepsiCo as if such transactions
occurred as of the beginning of 1999. Comparable operating results also exclude
an additional week of operating results in the acquired domestic territories
attributed to conforming them to Whitman's reporting calendar. In addition,
comparable operating results exclude $4.5 million of charges incurred in the
first quarter of 1999 related to the settlement of insurance, severance and
legal matters.
Sales for the first quarter of 2000 and 1999 are summarized below (in
millions):
<TABLE>
<CAPTION>
Reported % Comparable %
---------------------- ---------------------
2000 1999 Change 2000 1999 Change
-------- --------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 493.5 $ 356.8 38.3 $ 480.5 $ 461.3 4.2
International 55.4 13.5 * 55.4 46.1 20.2
-------- -------- -------- --------
Total sales $ 548.9 $ 370.3 48.2 $ 535.9 $ 507.4 5.6
======== ======== ======== ========
</TABLE>
* Not meaningful.
On a reported basis, domestic sales increased 38.3 percent in 2000
compared to 1999, primarily reflecting sales contributed by the acquired
territories and improved pricing.
On a comparable basis, domestic sales increased 4.2 percent, reflecting a
5.2 percent increase in the average net selling price across raw bottle and can
case volume. Volume in the quarter on an 8-ounce equivalent basis, including
food service, was down 1.0 percent due to soft volume in January and the timing
of Easter holiday sales, which were included in the first quarter of 1999.
Despite the overall decline in volume, increases occurred in the 20-ounce PET
package and the full service vending channel, reflecting the investments made in
the cold drink channel.
Reported international sales increased significantly due to sales
contributed by the Central European territories acquired from PepsiCo in
May, 1999 and Toma, a Czech beverage company acquired on December 1, 1999. On a
comparable basis, reflecting the new business relationship with PepsiCo, but
excluding Toma in 1999, sales increased by 20.2 percent and case volume
increased 37 percent, with the growth attributed to sales made by Toma in the
first quarter of 2000. Comparable volume growth, including Toma's volume in
1999, was 7.5 percent.
On a reported basis, the consolidated gross margin increased to 41.8
percent of sales in 2000, compared with 40.7 percent in 1999. This increase is
due to higher international margins attributable, in part, to the absence in the
first quarter of 2000 of lower margin territories in Russia and the Baltics, as
well as higher domestic margins resulting from the increase in net selling
prices and lower packaging costs. The consolidated gross profit margin on a
comparable basis decreased to 41.8 percent of sales in 2000, compared with 41.9
percent of sales in 1999. This decrease was driven by lower international
margins primarily attributable to sales of Toma products and Toma private label
business, which carry lower margins than Pepsi brand products. These lower
international margins were partially offset by a 1.0 percentage point
improvement in domestic margins, driven by higher net selling prices and lower
packaging costs.
9
On a reported basis, selling, general and administrative ("S,G&A")
expenses represented 33.1 percent of sales in 2000, compared with 31.2 percent
in 1999. The increase reflects a higher percentage of S,G&A expense in the
acquired domestic territories. In addition, the first quarter of 2000 included
$4.1 million of incremental domestic depreciation expense, principally related
to the Company's cold drink initiative, and $1.8 million incurred in the first
quarter of 2000 for the integration of the domestic territories acquired in
1999.
On a comparable basis, S,G&A expenses as a percent of sales were lower by
1.2 percentage points. This decrease is due to lower costs in the international
operations, including approximately $1 million in the quarter in reduced
administrative costs resulting from the consolidation of international
headquarters. Partially offsetting this improvement were slightly higher
domestic S,G&A expenses, resulting from the incremental depreciation expense and
integration costs described above, partially offset by cost savings in the
acquired domestic territories attributable to cost reduction programs initiated
in the latter part of 1999. Reported amortization expense increased $6.2 million
due to the transaction with PepsiCo.
Operating income for the first quarter of 2000 and 1999 is summarized
below (in millions):
<TABLE>
<CAPTION>
Reported % Comparable %
---------------------- ---------------------
2000 1999 Change 2000 1999 Change
-------- --------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 49.8 $ 38.6 29.0 $ 47.7 $ 42.7 11.7
International (12.2) (7.4) -64.9 (12.2) (14.1) 13.5
-------- -------- -------- --------
Total operating income $ 37.6 $ 31.2 20.5 $ 35.5 $ 28.6 24.1
======== ======== ======== ========
</TABLE>
In 2000, reported domestic operating income increased 29.0 percent,
principally reflecting operating income contributed by the acquired territories
and better pricing, partially offset by higher amortization expense.
On a comparable basis, domestic operating income increased 11.7 percent.
The domestic operating margin of 9.9 percent in 2000 was 0.6 percentage points
higher than a year ago, reflecting higher net selling prices and cost reduction
programs initiated in the latter part of 1999, partially offset by incremental
depreciation expense and integration costs.
Reported international operating losses increased due to operating losses
of the acquired international territories. On a comparable basis, international
operating losses decreased by $1.9 million from 1999, primarily due to lower
S,G&A expenses, including savings from the consolidation of international
headquarters.
Reported net interest expense increased $9.0 million to $20.3 million due
to debt incurred in connection with the transaction with PepsiCo, as well as
debt incurred to fund subsequent share repurchase activity.
The Company reported other income, net, of $2.1 million in the first
quarter of 2000 compared with $6.6 million in the first quarter of 1999. The
first quarters of 2000 and 1999 contained pretax gains on the sales of
franchises of $2.6 million and $11.4 million, respectively. Absent these gains,
other expense, net declined from $4.8 million in 1999 to $0.5 million in 2000.
This decrease is primarily due to reduced real estate taxes on non-operating
assets and management fees paid to PepsiCo in the first quarter of 1999, which
were discontinued in connection with the May, 1999 transaction.
10
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by continuing operations increased by $34.4 million to
$38.7 million in the first quarter of 2000. This increase is due primarily to
operating cash flow provided by the acquired domestic territories and improved
operating cash flow in the existing domestic territories.
Investing activities included $2.5 million in 2000 of net proceeds
received from the sale of the Company's Baltics operations and $113.6 million in
1999 of net proceeds received from the sale of the Marion, Princeton and Russia
franchise territories. The Company made capital investments of $34.3 million,
net of proceeds from dispositions, in its operations in the first quarter of
2000 compared with $36.1 million in the first quarter of 1999. Nearly two-thirds
of the first quarter 2000 capital investments made in the domestic operations
supported the Company's cold drink initiative.
The Company's total debt increased $25.6 million to $1,207.9 million at
the end of the first quarter of 2000, from $1,182.3 million at the end of fiscal
1999. The Company repurchased 2.6 million shares and 12.1 million shares of its
common stock for $31.5 million and $230.0 million in the first quarters of 2000
and 1999, respectively. The Company declared an annual dividend of $0.04 per
share during the first quarter of 2000, payable during the second quarter of
2000. The quarterly dividend rate in the first quarter of 1999 was five cents
per share. The issuance of common stock, including treasury shares, for the
exercise of stock options resulted in cash inflows of $1.0 million in the first
quarter of 2000, essentially the same as in the first quarter of 1999.
The Company has a revolving credit agreement with maximum borrowings of
$500 million, which acts as a back-up for the Company's $500 million commercial
paper program; accordingly, the Company has a total of $500 million available
under the commercial paper program and revolving credit facility combined. Total
commercial paper borrowings were $297.6 million at the end of the first quarter
of 2000. The Company believes that with its existing operating cash flows,
available lines of credit, and the potential for additional debt and equity
offerings, it will have sufficient resources to fund its future growth and
expansion, including potential franchise acquisitions.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking
information that reflects management's expectations, estimates and assumptions,
based on information available at the time this Form 10-Q was prepared. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
"plan," "intend" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements involve risks,
uncertainties and other factors that may cause the actual performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements, including, but not limited to, the following: competition, including
product and pricing pressures; changing trends in consumer tastes; changes in
the Company's relationship and/or support programs with PepsiCo and other brand
owners; market acceptance of new product offerings; weather conditions; cost and
availability of raw materials; availability of capital; labor and employee
benefit costs; unfavorable interest rate and currency fluctuations; costs of
legal proceedings; and general economic, business and political conditions in
the countries and territories where the Company operates.
These events and uncertainties are difficult or impossible to predict
accurately and many are beyond the Company's control. The Company assumes no
obligation to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to various market risks, including risks from
changes in commodity prices, interest rates and current exchange rates.
Commodity Prices
The risk from commodity price changes relates to the Company's ability to
recover higher product costs through price increases to customers, which may be
limited due to the competitive pricing environment that exists in the soft drink
business. From time to time, the Company uses swap contracts to hedge against
price fluctuations for a portion of its aluminum requirements. Costs for other
raw material requirements are managed by entering into firm commitments for
materials used.
Interest Rates
In the first quarter of 2000, the risk from changes in interest rates was
not material to the Company's operations because a significant portion of the
Company's debt issues were fixed rate obligations. Substantially all of the
Company's floating rate exposure related to changes in LIBOR and the overnight
Federal Funds rate. Assuming consistent levels of floating rate debt with those
held by the Company at the end of the first quarter of 2000, a 50 basis point
(0.5 percent) change in each of these rates would not have had a significant
impact on the Company's first quarter 2000 interest expense. The Company uses
interest rate swaps on a limited basis to manage floating rate debt exposure. In
the first quarter of 2000, the Company had cash equivalents throughout the
quarter, principally invested in money market funds and commercial paper, which
were most closely tied to overnight Federal Funds rates. Assuming a change of 50
basis points in the rate of interest associated with the Company's short-term
investments, interest income would not have changed by a significant amount.
Currency Exchange Rates
Because the Company operates international franchise territories, it is
subject to exposure resulting from changes in currency exchange rates. Currency
exchange rates are established based on a variety of economic factors including
local inflation, growth, interest rates and governmental actions, as well as
other factors. The Company currently does not hedge the translation risks of
investments in its international operations. Any positive cash flows generated
have been reinvested in the operations, other than loan repayments from the
manufacturing operations in Poland.
International operations represent approximately 10 percent of the
Company's total operations. Changes in currency exchange rates impact the
translation of the results of the international operations from their local
currencies into U.S. dollars. If the currency exchange rates had changed by 5
percent in the first quarter of 2000, the impact on reported operating income
would have been approximately $0.6 million. This estimate does not take into
account the possibility that specific currency exchange rates can move in
opposite directions and that gains in one category may or may not be offset by
losses from another category.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits.
12. Statement of Calculation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedules for the first quarters of 2000 and
1999.
(b). Reports on Form 8-K.
None.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITMAN CORPORATION
Date: May 12, 2000 By: /s/ MARTIN M. ELLEN
------------ -------------------------
Martin M. Ellen
Senior Vice President and Chief Financial Officer
(As Chief Accounting Officer and Duly
Authorized Officer of Whitman Corporation)
14
EXHIBIT 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION
OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions, except ratios)
<TABLE>
<CAPTION>
First Quarter Fiscal Years
---------------------- -------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before taxes $ 19.4 $ 26.5 $ 71.6 $ 152.2 $ 69.9 $ 127.7 $ 118.2
Fixed charges 22.5 13.3 73.5 51.5 75.6 74.4 76.7
--------- --------- -------- -------- -------- --------- ---------
Earnings as adjusted $ 41.9 $ 39.8 $ 145.1 $ 203.7 $ 145.5 $ 202.1 $ 194.9
========= ========= ======== ======== ======== ========= =========
Fixed charges:
Interest expense $ 20.8 $ 12.0 $ 67.1 $ 46.4 $ 69.0 $ 68.2 $ 70.3
Preferred stock dividend requirements
of majority owned subsidiary -- -- -- -- 1.7 1.5 1.4
Portion of rents representative
of interest factor 1.7 1.3 6.4 5.1 4.9 4.7 5.0
--------- --------- -------- -------- -------- --------- --------
Fixed charges $ 22.5 $ 13.3 $ 73.5 $ 51.5 $ 75.6 $ 74.4 $ 76.7
========= ========= ======== ======== ======== ========= ========
Ratio of earnings to
fixed charges* 1.9x 3.0x 2.0x 4.0x 1.9x 2.7x 2.5x
========= ========= ======== ======== ======== ========= =========
</TABLE>
* Whitman Corporation recorded a pretax gain of $2.6 million in the first
quarter of 2000 related to the sale of operations in the Baltics.
Excluding this gain, the ratio of earnings to fixed charges for the first
quarter of 2000 would have been 1.7x.
Whitman Corporation also recorded special charges of $27.9 million in the
second and third quarters of 1999, as well as a $56.3 million pretax
charge in the second quarter of 1999 to reduce the book value of
non-operating real estate. In addition, Whitman Corporation recorded an
$11.4 million pretax gain in the first quarter of 1999 on the sale of
operations in Marion, Virginia; Princeton, West Virginia and the St.
Petersburg area of Russia, as well as a $1.9 million increase to this gain
in the fourth quarter of 1999. Excluding these full year charges and
credits, the ratio of earnings to fixed charges for fiscal year 1999 would
have been 2.9x. Excluding the first quarter 1999 gain, the ratio of
earnings to fixed charges for the first quarter of 1999 would have been
2.1x.
Intercompany interest income from Hussmann and Midas was $1.6 million,
$23.1 million, $23.7 million and $21.8 million in 1998, 1997, 1996 and
1995, respectively. If the fixed charges had been reduced by this
intercompany interest income, the ratio of earnings to fixed charges for
1998, 1997, 1996 and 1995 would have been 4.1x, 2.3x, 3.5x and 3.2x,
respectively.
Whitman Corporation recorded special charges of $49.3 million during 1997.
Excluding these special charges, the 1999 ratio of earnings to fixed
charges would have been 2.6x. Additionally, if the fixed charges for 1997
were adjusted for the intercompany interest income noted above, the ratio
of earnings to fixed charges would have been 3.3x.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WHITMAN
CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001084230
<NAME> WHITMAN CORPORATION
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-30-2000 JAN-01-2000
<PERIOD-END> APR-01-2000 APR-03-1999
<CASH> 111,900 0
<SECURITIES> 0 0
<RECEIVABLES> 252,100 0
<ALLOWANCES> 6,500 0
<INVENTORY> 115,700 0
<CURRENT-ASSETS> 55,400 0
<PP&E> 1,397,000 0
<DEPRECIATION> 577,900 0
<TOTAL-ASSETS> 2,855,800 0
<CURRENT-LIABILITIES> 753,200 0
<BONDS> 808,600 0
0 0
0 0
<COMMON> 1,634,200 0
<OTHER-SE> (513,600) 0
<TOTAL-LIABILITY-AND-EQUITY> 2,855,800 0
<SALES> 548,900 370,300
<TOTAL-REVENUES> 548,900 370,300
<CGS> 319,700 219,700
<TOTAL-COSTS> 511,300<F1> 339,100<F3>
<OTHER-EXPENSES> (2,100) (6,600)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,300<F2> 11,300<F4>
<INCOME-PRETAX> 19,400 26,500
<INCOME-TAX> 9,200 8,300
<INCOME-CONTINUING> 10,200 14,300<F5>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,200 14,300
<EPS-BASIC> 0.07 0.15
<EPS-DILUTED> 0.07 0.15
<FN>
<F1>
TOTAL COSTS INCLUDE COSTS OF GOODS SOLD, S,G&A EXPENSES AND AMORTIZATION EXPENSE
OF $319,700, $181,500 AND $10,100, RESPECTIVELY.
<F2>
INTEREST EXPENSE, NET, INCLUDES INTEREST EXPENSE AND INTEREST INCOME OF $20,800
AND $500, RESPECTIVELY.
<F3>
TOTAL COSTS INCLUDE COSTS OF GOODS SOLD, S,G&A EXPENSES AND AMORTIZATION EXPENSE
OF $219,700, $115,500 AND $3,900, RESPECTIVELY.
<F4>
INTEREST EXPENSE, NET, INCLUDES INTEREST EXPENSE AND INTEREST INCOME OF $12,000
AND $700, RESPECTIVELY.
<F5>
INCOME FROM CONTINUING OPERATIONS IS REDUCED BY MINORITY INTEREST OF $3,900.
</FN>
</TABLE>
