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 June 30, 1994
/ / 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 1-4710
WHITMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-6076573
------------------------------------- ------------------------------
(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 (708) 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 July 29, 1994, the Registrant had 105,167,958 outstanding shares
(excluding treasury shares) of common stock, no par value, the Registrant's
only class of common stock.
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1994 1993 1994 1993
------- ------- ------- -------
(in millions, except per-share data)
Sales and Revenues $ 673.5 $ 634.7 $1,220.4 $1,157.2
Cost of Goods Sold 424.8 401.0 778.7 740.5
-------- -------- -------- --------
Gross Profit 248.7 233.7 441.7 416.7
Selling, General and Administrative
Expenses 153.1 147.9 296.3 286.2
Amortization Expense 4.4 4.3 8.7 8.5
-------- -------- -------- --------
Operating Income 91.2 81.5 136.7 122.0
Interest Expense (17.8) (25.4) (36.8) (49.2)
Interest Income 1.7 3.3 3.3 5.7
Other Expense, Net (5.3) (3.3) (11.5) (3.6)
-------- -------- -------- --------
Income Before Income Taxes 69.8 56.1 91.7 74.9
Income Tax Provision 29.1 23.2 38.5 31.2
Income Before Minority Interest -------- -------- -------- --------
and Cumulative Effect of
Accounting Change 40.7 32.9 53.2 43.7
Minority Interest 4.9 3.8 7.6 6.2
-------- -------- -------- --------
Income Before Cumulative Effect of
Accounting Change 35.8 29.1 45.6 37.5
Cumulative Effect of
Accounting Change -- -- -- (24.0)
-------- -------- -------- --------
Net Income $ 35.8 $ 29.1 $ 45.6 $ 13.5
======== ======== ======== ========
Average Number of Common Shares
Outstanding 106.0 107.4 106.2 107.4
======== ======== ======== ========
Income (Loss) per Common Share:
Before Cumulative Effect of
Accounting Change $ 0.34 $ 0.27 $ 0.43 $ 0.35
Cumulative Effect of Accounting
Change -- -- -- (0.22)
-------- -------- -------- --------
Net Income $ 0.34 $ 0.27 $ 0.43 $ 0.13
======== ======== ======== ========
Cash Dividends per Common Share $ 0.085 $ 0.075 $ 0.160 $ 0.140
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1994 1993
------------ ------------
(in millions)
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 75.1 $ 93.0
Receivables 318.5 324.1
Inventories 240.8 222.7
Other Current Assets 50.7 51.4
-------- --------
Total Current Assets 685.1 691.2
Investments 213.6 238.5
Property (at Cost) 1,149.9 1,106.9
Accumulated Depreciation and Amortization (569.6) (534.1)
-------- --------
Net Property 580.3 572.8
Intangible Assets 536.3 525.9
Other Assets 75.5 74.8
-------- --------
Total Assets $ 2,090.8 $ 2,103.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-Term Debt, Including Current Portion
of Long-Term Debt $ 90.0 $ 90.0
Accounts and Dividends Payable 253.9 232.9
Other Current Liabilities 138.7 149.8
-------- --------
Total Current Liabilities 482.6 472.7
Long-Term Debt 737.9 749.3
Deferred Income Taxes 48.1 66.6
Other Liabilities 128.8 124.7
Minority Interest 198.4 172.9
Shareholders' Equity:
Common Stock (No par, 250.0 million shares
authorized; 105.2 million shares outstanding
at June 30, 1994 and 107.1 million shares
outstanding at December 31, 1993) 404.9 404.4
Retained Income 201.6 172.4
Cumulative Translation Adjustment (54.0) (52.3)
Net Unrealized Investment Losses (18.0) --
Treasury Common Stock (39.5) (7.5)
-------- --------
Total Shareholders Equity 495.0 517.0
-------- --------
Total Liabilities and Shareholders' Equity $ 2,090.8 $ 2,103.2
======== ========
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------
1994 1993
------- -------
(in millions)
Cash Flows from Operating Activities:
Income Before Cumulative Effect of Accounting
Change $ 45.6 $ 37.5
Adjustments to Reconcile to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 49.2 48.2
Other 10.1 13.2
Changes in Assets and Liabilities, Net of Acquisitions
and Dispositions:
Decrease (Increase) in Receivables 6.9 (25.6)
Increase in Inventories (17.5) (15.8)
Increase in Payables 20.8 32.6
Net Change in Other Assets and Liabilities (15.9) (4.7)
------- -------
Net Cash Provided by Continuing Operations 99.2 85.4
Net Cash Used in Discontinued Operations (0.3) (4.5)
------- -------
Net Cash Provided by Operating Activities 98.9 80.9
------- -------
Cash Flows from Investing Activities:
Capital Investments, Net (47.2) (31.3)
Increase in Investments (5.7) (145.9)
------- -------
Net Cash Used in Investing Activities (52.9) (177.2)
------- -------
Cash Flows from Financing Activities:
Proceeds from Issuance of Long-Term Debt 111.7 201.4
Repayment of Long-Term Debt (166.5) (27.2)
Net Borrowings of Bank Lines of Credit and Commercial
Paper 39.9 --
Increase (Decrease) in Current Debt -- 0.1
Common Dividends (16.9) (15.0)
Treasury Stock Purchases (32.5) --
Issuance of Common Stock 1.0 1.4
------- -------
Net Cash Provided by (Used in) Financing Activities (63.3) 160.7
------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (0.6) 0.7
------- -------
Change in Cash and Cash Equivalents (17.9) 65.1
Cash and Cash Equivalents at January 1 93.0 132.5
------- -------
Cash and Cash Equivalents at June 30 $ 75.1 $197.6
======= =======
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein have
been prepared by the Registrant, 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 Registrant
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
Registrant's Annual Report to Shareholders incorporated by reference
in its Annual Report on Form 10-K for the year ended December 31,
1993. 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.
2. During the first quarter of 1994, the Registrant's subsidiary, Pepsi
General, acquired a Pepsi-Cola franchise in Waterloo, Iowa, from
Midland Bottling Co. ("Midland Bottling"), a subsidiary of PepsiCo,
Inc. The acquisition was made through a tax-free merger in which
Pepsi General issued 2,025 shares of its Preferred Stock, Series A, to
Midland Bottling. The effects of this acquisition, had it been
acquired on January 1, 1994, would not have been significant to
operating results.
3. At June 30, 1994, investments included common stock held in Northfield
Laboratories, Inc. having a book carrying value of $37.4 million.
During May, 1994, Northfield Laboratories went public through an
initial public offering of 2,500,000 shares of common stock. Prior to
the offering, there had been no public market for any Northfield
Laboratories securities. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", the Registrant adjusted its investment in
Northfield Laboratories to reflect the current market value. The fair
value of these securities based upon quoted market prices was lower
than the book carrying value by $28.1 million at June 30, 1994. The
net unrealized loss on the Northfield Laboratories investment after
reflecting deferred tax benefits of $10.1 million was reported
directly in a separate shareholders' equity account, Net Unrealized
Investment Losses.
4. In the first quarter of 1993, the Registrant adopted Statement of
Financial Accounting Standards No. 106, which among other items,
required the Registrant to reflect in its financial statements
estimates of future costs of medical and survivor benefits for certain
retirees. Previously, the costs of the Registrant's retiree medical
and survivor benefit programs were recognized in the financial
statements on a cash accounting basis. The cumulative effect of
adopting this change in accounting principle as of January 1, 1993
resulted in a non-cash pretax charge of $38.7 million ($24.0 million
after-tax, or $0.22 per share) and is reported as a separate component
in the Registrant's Condensed Consolidated Statements of Income. The
effect of Statement No. 106 on annual postretirement benefit expense,
compared with the previous accounting method, is not significant.
5. Effective January 1, 1993, the Registrant adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Statement No. 109 supersedes existing accounting standards for income
taxes including Statement No. 96 which the Registrant adopted in 1988.
Adoption of Statement No. 109 did not result in any cumulative
adjustment and did not have any significant effect on the Registrant's
financial statements or results of operations due to the Registrant's
use of the liability method previously adopted under Statement 96.
6. Net cash provided by operating activities reflected cash payments for
interest and income taxes as follows:
Six Months Ended
June 30,
-----------------
1994 1993
------- -------
(in millions)
Interest Paid $ 35.2 $ 34.2
Interest Received 3.3 5.7
Income Taxes Paid 36.0 27.3
7. As of June 30, 1994, the components of inventory were approximately:
raw materials and supplies -- 30.7 percent; work in process -- 18.3
percent; and finished goods --51.0 percent.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, the Registrant had cash and cash equivalents of
$75.1 million, compared with $93.0 million at December 31, 1993. The
decrease in cash during the first six months of 1994 principally resulted
from the purchase of treasury stock, capital investments, net debt
retirement and dividends, partially offset by cash provided from
operations.
In the first six months of 1994, the Registrant issued debt totaling
$111.7 million, principally consisting of 12-year notes with an interest
rate of 6.5 percent. In addition, the Registrant increased borrowings
under bank lines of credit and commercial paper by $39.9 million. The
proceeds from the issuance of debt along with cash provided from operations
was used primarily to repay long-term debt totaling $166.5 million. In
total, the Registrant's debt decreased $11.4 million from December 31, 1993
to $827.9 million at June 30, 1994.
Cash provided from operations amounted to $98.9 million in the first
six months of 1994, compared with $80.9 million in the first six months of
1993. The increase of $18.0 million principally resulted from higher
income and higher receivable collections, partially offset by higher
payable disbursements. Cash provided from operations, together with
existing cash balances, was used principally for capital investments,
dividends, treasury stock purchases and net debt retirement.
The Registrant had contractual bank lines of credit of $300.0 million
at June 30, 1994, up $50.0 million from December 31, 1993. The Registrant
also maintains a $200 million commercial paper program. There were
borrowings under these programs of $123.5 million and $83.6 million at June
30, 1994 and December 31, 1993, respectively.
RESULTS OF OPERATIONS
1994 SECOND QUARTER COMPARED WITH 1993 SECOND QUARTER
Sales and revenues increased 6.1 percent to $673.5 million in the
second quarter of 1994 with revenue increases being reported by each of the
Registrant's three major subsidiaries. Sales for the Registrant's three
major subsidiaries are summarized below:
Quarter Ended
June 30,
---------------- %
1994 1993 Change
------ ------ ------
(in millions)
Pepsi General $ 323.8 $ 297.7 8.8
Midas 146.1 139.5 4.7
Hussmann 203.6 197.5 3.1
------- -------
Total Sales and Revenues $ 673.5 $ 634.7 6.1
======= =======
Pepsi General's revenues increased by $26.1 million, reflecting the
benefits of both improved product demand and higher selling prices. Case
volume was 7.0 percent higher in the second quarter of 1994 compared with
the second quarter of 1993. Midas revenues increased $6.6 million, chiefly
due to higher retail sales in the United States. Hussmann sales increased
$6.1 million with stronger sales in Canada, Mexico and the United Kingdom
partially offset by lower sales in the U.S. Demand for supermarket
equipment in the U.S., which was unusually strong in the second quarter of
1993, returned to more normalized levels in 1994.
Gross profit increased 6.4 percent to $248.7 million, primarily due to
the increase in sales. Gross profit margins increased to 36.9 percent from
36.8 percent in 1993, generally reflecting the benefits of both higher
sales volume and higher selling prices at Pepsi General, partially offset
by lower margins at Hussmann, reflecting increasing competitive pricing
pressures and a change in product selling mix.
Selling, general and administrative expenses increased $5.2 million,
or 3.5 percent. As a percent of sales, S,G&A expense represented 22.7
percent, down 0.6 percentage points from last year. Amortization expense
did not change significantly.
Operating income increased $9.7 million, or 11.9 percent, to $91.2
million with higher earnings being reported by all three of the
Registrant's major subsidiaries. Operating income for the Registrant's
major subsidiaries for the second quarter of 1994 compared with 1993 is
summarized below:
Quarter Ended
June 30,
---------------- %
1994 1993 Change
------ ------ ------
(in millions)
Pepsi General $50.7 $44.2 14.7
Midas 24.9 23.7 5.1
Hussmann 19.8 17.3 14.5
------ ------
Subsidiary Operating Income 95.4 85.2 12.0
Corporate Administrative Expenses (4.2) (3.7) 13.5
------ ------
Total Operating Income $91.2 $81.5 11.9
====== ======
In the second quarter, Pepsi General had record operating earnings,
primarily reflecting the benefits of higher volumes and prices. Midas'
operating earnings were also a record, up $1.2 million, or 5.1 percent,
principally reflecting improved retail sales in the U.S. Midas'
international operations were essentially flat for the quarter as a
stronger performance in Europe was offset by weaker results in Canada and
Australia. Hussmann reported record earnings of $19.8 million, up 14.5
percent from the earnings of a year ago. The increase chiefly resulted
from improved earnings in Mexico due to higher sales, and higher earnings
in the U.S. and Canada, principally reflecting the benefits of ongoing
programs to contain costs and improve the efficiency of manufacturing
operations.
Net interest expense declined by $6.0 million as a result of the
Registrant's debt refinancing program. During the last eighteen months,
the Registrant repaid $597.3 million of debt from cash provided by
operations, bank borrowings under bank lines and commercial paper programs,
and proceeds from $375.0 million of debt issued during that period which
had an average interest cost of 6.9%, more than 300 basis points below the
debt the refinancings replaced.
Other expense increased $2.0 million to $5.3 million for the second
quarter of 1994. The increase principally reflected a variance in gains
and losses from asset sales.
RESULTS OF OPERATIONS
1994 FIRST SIX MONTHS COMPARED WITH 1993 FIRST SIX MONTHS
Sales and revenues increased 5.5 percent to $1,220.4 million in the
first six months of 1994, with increases being reported by all three of the
Registrant's major subsidiaries. Sales for the Registrant's three major
subsidiaries for the first six months of 1994 compared with 1993 are
summarized below:
Six Months Ended
June 30,
---------------- %
1994 1993 Change
------ ------ ------
(in millions)
Pepsi General $ 598.8 $ 554.9 7.9
Midas 256.5 243.4 5.4
Hussmann 365.1 358.9 1.7
-------- --------
Total Sales and Revenues $1,220.4 $1,157.2 5.5
======== ========
Pepsi General's revenues increased by $43.9 million, reflecting
improved product demand and higher selling prices. Case volume increased
6.0 percent in the first six months of 1994 compared with the corresponding
period of 1993. Midas revenues increased $13.1 million, chiefly due to
higher retail sales in the United States. Hussmann's revenues increased
$6.2 million, or 1.7 percent, with stronger sales in Canada, Mexico and
the United Kingdom, partially offset by lower sales in the U.S. Demand for
supermarket equipment in the U.S., which was unusually strong in the first
six months of 1993, returned to more normalized levels in 1994.
Gross profit increased 6.0 percent to $441.7 million, primarily due to
the increase in sales. Gross profit margins increased to 36.2 percent from
36.0 percent in 1993, generally reflecting the benefits of both higher
sales volume and higher selling prices at Pepsi General partially offset by
lower margins at Hussmann, reflecting increasing competitive pricing
pressures and a change in product selling mix.
Selling, general and administrative expenses increased $10.1 million,
or 3.5 percent. As a percent of sales, S,G&A expense represented 24.3
percent, down 0.4 percentage points from last year. Amortization expense
did not change significantly.
Operating income increased $14.7 million, or 12.0 percent, to $136.7
million with increases reported by all three of the Registrant's major
subsidiaries. Operating income for the Registrant's major subsidiaries for
the first six months of 1994 compared with 1993 is summarized below:
Six Months Ended
June 30,
---------------- %
1994 1993 Change
------ ------ ------
(in millions)
Pepsi General $ 84.5 $ 72.8 16.1
Midas 33.7 31.9 5.6
Hussmann 26.8 24.7 8.5
------- -------
Subsidiary Operating Income 145.0 129.4 12.1
Corporate Administrative Expenses (8.3) (7.4) 12.2
------- -------
Total Operating Income $ 136.7 $ 122.0 12.0
======= =======
In the first six months, Pepsi General had record operating earnings,
primarily reflecting the benefits of higher volumes and prices. Midas'
operating earnings were up $1.8 million, or 5.6 percent, principally
reflecting improved retail sales in the U.S. and the impact of its new
sales and marketing programs. Hussmann reported record earnings of $26.8
million, up 8.5 percent from the earnings of a year ago. The increase
chiefly resulted from improved earnings in Canada, Mexico and the United
Kingdom due to higher sales.
Net interest expense declined by $10.0 million as a result of the
Registrant's debt refinancing program. During the last eighteen months,
the Registrant repaid $597.3 million of debt from cash provided by
operations, bank borrowings under bank lines and commercial paper programs,
and proceeds from $375.0 million of debt issued during that period which
had an average interest cost of 6.9%, more than 300 basis points below the
debt the refinancings replaced.
Other expense increased $7.9 million to $11.5 million for the first
six months of 1994. The increase principally reflected a variance in gains
and losses from asset sales.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) May 5, 1994 Annual Meeting of Shareholders.
(b) Election of Directors
The following persons were elected at the Annual Meeting of
Shareholders held May 5, 1994, to serve as Directors for the
ensuing year:
Bruce S. Chelberg Helen Galland
Richard G. Cline Jarobin Gilbert, Jr.
James W. Cozad Donald P. Jacobs
Pierre S. duPont IV Charles S. Locke
Archie R. Dykes
(c) Matters Voted Upon
Proposal Number 1 (Election of Directors)
To consider and vote upon the Registrant's directors.
The following votes were recorded with respect thereto:
Nominees Votes For Votes Withheld
-------- --------- --------------
Bruce S. Chelberg 95,611,800 547,491
Richard G. Cline 95,665,518 493,778
James W. Cozad 95,639,903 519,393
Pierre S. duPont IV 95,615,621 543,675
Archie R. Dykes 95,567,771 591,525
Helen Galland 95,380,216 779,080
Jarobin Gilbert, Jr. 95,606,157 553,139
Donald P. Jacobs 95,600,876 558,420
Charles S. Locke 95,655,081 504,215
Proposal Number 2 (Independent Public Accountants)
To consider and vote upon the proposal to ratify the selection of
KPMG Peat Marwick as the Registrant's independent public
accountants.
Votes For and Against and Abstentions on this matter were as
follows:
For Against Abstain
------ ---------- --------
95,673,053 158,089 328,154
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12. Statement of Calculation of Ratio of Earnings to Fixed
Charges.
(b) Reports on Form 8-K.
None filed during the second quarter ended June 30, 1994.
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: August 3, 1994 By: /s/ FRANK T. WESTOVER
-----------------------------
Frank T. Westover
Senior Vice President and
Controller
(As Chief Accounting Officer
and Duly Authorized Officer of
Whitman Corporation)
EXHIBIT 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION
OF RATIO OF EARNINGS TO FIXED CHARGES
(in Millions, Except Ratios)
Six Months
June 30, Years Ended December 31,
------------ ------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
Earnings:
Income from Continuing
Operations before
Taxes $ 91.7 $ 74.9 $212.2 $170.6 $161.7 $(39.0) $146.8
Fixed Charges Excluding
Capitalized Interest 41.8 53.9 105.9 106.9 138.2 168.1 166.1
------ ------ ------ ------ ------ ------ ------
Income as Adjusted $133.5 $128.8 $318.1 $277.5 $299.9 $129.1 $312.9
====== ====== ====== ====== ====== ====== ======
Fixed Charges:
Interest Expense $ 36.8 $ 49.2 $ 96.2 $ 97.7 $128.6 $158.7 $156.2
Portion of Rents
Representative of
Interest Factor 5.0 4.7 9.7 9.2 9.6 9.4 9.9
------ ------ ------ ------ ------ ------ ------
Fixed Charges Excluding
Capitalize Interest 41.8 53.9 105.9 106.9 138.2 168.1 166.1
Capitalized Interest -- 0.1 0.2 0.2 0.2 0.3 0.3
------ ------ ------ ------ ------ ------ ------
Total Fixed Charges $ 41.8 $ 54.0 $106.1 $107.1 $138.4 $168.4 $166.4
====== ====== ====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges 3.2x 2.4x 3.0x 2.6x 2.2x 0.8x 1.9x
====== ====== ====== ====== ====== ====== ======
(1)
(1) In 1990, the ratio of earnings to fixed charges was less than
one to one coverage principally as a result of a $170 million
restructuring charge. The dollar amount of fixed charge coverage
deficiency in 1990 was $39.3 million. Excluding the restructuring
charge, the ratio of earnings to fixed charges was 1.8 times in 1990.
