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1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996.
[ ] 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 001-04710
WHITMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-6076573
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3501 Algonquin Road, Rolling Meadows, Illinois 60008
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 818-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 1997, the aggregate market value of the registrant's
common stock held by non-affiliates was $2,399.2 million. The number of shares
of common stock outstanding at that date was 102,092,432 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part Item
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1. Whitman Corporation definitive proxy statement
dated March 20, 1997 for the 1997 Annual
Meeting of Shareholders. III 10, 11, 12
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<PAGE>
PART I
Item 1. BUSINESS.
GENERAL
Whitman Corporation ("Whitman") is engaged in three distinct businesses:
the production and distribution of Pepsi-Cola and other non-alcoholic beverage
products by Pepsi-Cola General Bottlers, Inc. ("Pepsi General"); automotive
services offered by Midas International Corporation ("Midas"); and the
production, sale and servicing of refrigeration systems and equipment by
Hussmann Corporation ("Hussmann").
This Form 10-K contains forward-looking statements which reflect
management's expectations and are based on currently available information.
Actual results or other information may vary significantly from such statements
and are subject to future events and uncertainties, including, among other
factors, weather, economic and market conditions, exchange rates, cost and
availability of raw materials, competitive activities or other business
conditions.
PEPSI GENERAL
Pepsi General produces and distributes soft drinks and non-alcoholic
beverages, under exclusive franchises, in 12 Midwestern states - a market of
approximately 25 million people. It is the largest independent Pepsi bottler in
the U.S., accounting for about 12 percent of all Pepsi-Cola products sold in the
U.S. and outsells all other brands in its combined U.S. franchise territory. In
1994, Pepsi General became an international company when it began operations in
a newly franchised area of northern and western Poland. This market, when fully
developed, will serve approximately 16 million people.
In 1996, approximately 88 percent of Pepsi General's domestic volume was
from Pepsi-Cola products, including: Pepsi, Diet Pepsi, Caffeine Free Pepsi,
Caffeine Free Diet Pepsi, Wild Cherry Pepsi, Diet Wild Cherry Pepsi, Mountain
Dew, Diet Mountain Dew, Caffeine Free Mountain Dew, Slice, Mug Root Beer and
All-Sport. Other soft drink brands, including Dr Pepper, Seven- Up, Hawaiian
Punch, Canada Dry, Seagram's mixers, Ocean Spray and Lipton Tea account for the
remaining 12 percent. Diet products account for slightly more than 26 percent of
total cases sold. Approximately three-quarters of all cases sold are in cans and
one-quarter are in non-returnable bottles.
Volume growth in the soft drink industry has historically come from the
supermarket sector, where competition is intense. Recently, Pepsi General's
focus has been to obtain more of its growth from higher margin distribution
channels such as convenience stores, gas stations, vending machines and food
service providers.
The majority of Pepsi General's products are distributed by route sales
people to retail outlets by truck. Currently, Pepsi General operates more than
1,300 routes domestically and 160 routes in Poland. For several years, Pepsi
General has been expanding its bulk distribution system for larger customers,
Pepsi Express, in efforts to improve delivery productivity. In Poland, now that
the initial market penetration has been completed, Pepsi General has begun the
process of improving the efficiency of its delivery system by consolidating some
routes and installing a presold delivery system in others. In addition, Pepsi
General has pioneered the use of hand-held computers for route sales people.
This system enables Pepsi General to process sales and orders more efficiently,
allows for better inventory and discount controls, and enables sales personnel
to handle a wider range of products more efficiently.
Pepsi General owns the majority of vending machines which dispense its soft
drink products in factories, offices, schools, stores, gasoline stations and
other locations. Pepsi General's business is seasonal and weather conditions
have a significant effect on sales.
One of Pepsi General's long-term strategic goals is to transform itself
from a carbonated soft drink company to a total beverage company and to grow
faster than the industry. In 1996, Pepsi General continued to expand its product
line by adding several new flavors to its Ocean Spray juice line and the
All-Sport isotonic drink line. Pepsi General also replaced its other root beer
product lines with Mug Root Beer, increasing root beer sales by 27 percent.
Pepsi General also distributed a bottled spring water in all of its markets.
Pepsi General's franchises grant it the exclusive right to produce and sell
the products and use the related trade names and trademarks in the franchised
territories. The franchises require Pepsi General, among other things, to
purchase its concentrate requirements solely from the franchisor, at prices
established by the franchisor, and to promote diligently the sale and
distribution of the franchised products. Domestic franchises are for an
indefinite term and are subject to termination upon failure to comply with the
provisions of the franchise agreement.
Competition among soft drinks of all kinds, and particularly in the
principal cola drink market (approximately 60 percent of all soft drinks sold in
the U.S. are colas), is intense and focuses on price to retail outlets.
Packaging materials (bottles, bottle caps, cans, cartons, cases) are obtained
from manufacturers approved by the franchisor and other items are purchased in
the general market. The inability of suppliers to deliver concentrate or other
products to Pepsi General could adversely affect operating results
significantly. However, despite fluctuations in the price of high fructose corn
sweetener and materials used in soft drink packaging, Pepsi General has not
experienced difficulty in obtaining such items.
As the result of an agreement entered into in 1987, Pepsi General is 80%
owned by Whitman and 20% owned by a subsidiary of PepsiCo, Inc. ("PepsiCo"),
which is the franchisor of Pepsi-Cola products. While Pepsi General manages all
phases of its operations, including pricing of its products, PepsiCo and Pepsi
General exchange production, marketing, and distribution information.
At year-end 1996, Pepsi General acquired the assets of the St. Petersburg,
Russia franchise from PepsiCo, which permits Pepsi General to produce and
distribute Pepsi-Cola products in that city, as well as in other parts of
northern Russia, including Kaliningrad. The Company also acquired franchises for
Belarus and the Baltic countries of Estonia, Lithuania and Latvia.
By the end of 1996, the Company had invested over $125 million in Poland
and it is expected that additional investments in Poland, Russia, Belarus and
the Baltics may exceed another $100 million over the next 3 years.
The Company has experienced operating losses each year in Poland,
increasing from $11.3 million in 1995 to $12.1 million in 1996. Pepsi General
expects to continue to have operating losses in Poland for the next 2 or 3
years, but at levels below those incurred in 1996. Pepsi General expects,
however, that with start-up costs to be incurred in Russia and the Baltics,
total operating losses in 1997 in its international operations will exceed the
losses incurred in Poland in 1996.
MIDAS
Midas provides automotive exhaust, brake and suspension services through
more than 2,600 franchised and company-owned Midas shops in the United States,
Canada, France, Belgium, Austria, Switzerland, Spain, Italy, Australia, New
Zealand, Taiwan, Panama, Mexico, Honduras, El Salvador, Brazil and the Bahamas.
Domestic manufacturing plants produce approximately 2,000 different types of
mufflers and 3,200 types of exhaust and tail pipes to service approximately
1,200 makes and models of automobiles.
The principal source of Midas' revenue is derived from its network of
franchised and company-owned and operated retail shops. Midas collects an
initial franchise fee and receives yearly royalties based upon the franchisee's
gross revenues. In addition, Midas generates revenues from the sale of its
manufactured mufflers and tubing; the resale of purchased parts, primarily
brakes, shocks and front-end alignment components to its franchisees; and rental
real estate revenues from franchisees related to the leasing of Midas shops. An
important part of Midas' marketing program is its warranty of mufflers, brakes,
and shocks. Midas also sells its manufactured exhaust system parts under other
brand names to automotive parts distributors, jobbers and automotive accessory
stores and its fabricated tube bending equipment to jobbers and retail
installers.
The raw materials and supplies used in Midas products are purchased from
many suppliers and the company is not dependent upon any single source for any
of its raw materials or supplies.
Competition in the automotive replacement parts business is intensive at
both the wholesale and retail levels. Service and convenience, price and
warranties are the primary competitive factors. Competition includes automotive
service centers of the retail chain stores, muffler shops, automotive dealers,
gasoline stations and independent repair shops.
HUSSMANN
Hussmann produces, sells and services merchandising and refrigeration
systems for the world's food industry. Products include refrigerated display
cases, commercial/industrial refrigeration systems, storage coolers, bottle
coolers, walk-in coolers, and heating, ventilating and air conditioning (HVAC)
equipment. Hussmann is the market leader in North America, Mexico and the U.K.
The supermarket refrigerated display equipment industry in the United States,
Hussmann's core business, represents an $800 million market. The United States
customer base is comprised of approximately 13,000 independent and 18,000 chain-
owned supermarkets, plus over 52,000 other grocery stores. Every year,
approximately 4,000 stores purchase refrigeration equipment for either new store
openings or remodelings. Historically, Hussmann's supermarket business has been
divided approximately equally between new store activity and the remodeling of
existing stores. In 1996, about 44 percent of such business was in new store
openings, and 56 percent remodelings.
The convenience store ("C-store")/specialty equipment industry in the U.S.
represents a market of over $300 million per year. This industry, once aimed at
the stand-alone C-store, has grown first into convenience marts owned and
operated by the large oil companies, and later into food service installations
such as Boston Market and Kenny Rogers.
North American commercial/industrial refrigeration represents a market of
nearly $500 million. Hussmann's operations in the U.S. and Canada manufacture
unit coolers for walk-in coolers and freezers, condensing units, and air-cooled
condenser products for this market.
In Mexico, Hussmann has two manufacturing operations, and uses both a
direct sales force and a network of 150 independent dealers and distributors to
bring its products to the Mexican market. A large portion of Hussmann's business
in Mexico is in equipment for the soft drink and brewery industries. During
1995, Hussmann expanded its operations in South America with an acquisition of a
75 percent interest in a small manufacturer in Chile. In January, 1997, Hussmann
acquired a 70 percent interest in a Brazilian supermarket equipment
manufacturer. Hussmann's Canadian operations consist of two manufacturing plants
and a network of company-owned branches and independent distributors.
In the United Kingdom, Hussmann has two manufacturing plants and a network
of sales, service, and installation depots located throughout the country.
Hussmann's branch service and distribution network in the United Kingdom is
believed to be at least twice the size of its nearest competitor.
In the Far East, Hussmann has a joint venture with a distributor in
Singapore which sells, services, and distributes Hussmann products throughout
Asia. Hussmann also has a 55 percent interest in the Luoyang Refrigeration
Machinery Factory, China's leading producer of refrigeration systems and food
display cases. Hussmann commenced operations in a new factory in Luoyang in
1996, and began to produce Hussmann designed products. Hussmann also has
distributor agreements in Taiwan, New Zealand, Korea, Argentina, Columbia, El
Salvador and Costa Rica and licensees in Thailand and New Zealand.
One of Hussmann's strengths is its research and development ("R&D") center,
where the PROTOCOL(TM) system, a unique refrigeration system which is
chloroflourocarbon (CFC) and hydrochloroflourocarbon (HCFC) free and less
expensive to install and operate than conventional systems, was developed. It is
the only R&D center of its kind in the industry. It allows Hussmann to work
closely with chemical companies and compressor, valve and controls manufacturers
to create new generations of cases and systems.
The dollar amount of firm backlog at December 31, 1996 was $168 million,
compared with $173 million at December 31, 1995. Substantially all such backlog
is expected to be shipped within one year.
Hussmann products are marketed internationally by both company sales
personnel and independent distributors. The principal competitive factors in the
sale of Hussmann products are price, variety, quality and technology,
particularly energy conservation. The raw materials and supplies used in
Hussmann products are purchased from many suppliers and Hussmann is not
dependent upon any single source for any of its raw materials or supplies.
EMPLOYEES
Whitman employed 17,594 persons worldwide as of December 31, 1996. Whitman
regards its employee relations as generally satisfactory.
ENVIRONMENTAL MATTERS
Whitman maintains a continuous program to facilitate compliance with
federal, state and local laws and regulations relating to the discharge or
emission of materials into, and other laws and regulations relating to the
protection of, the environment. The capital costs of such compliance, including
the costs of the modification of existing plants and the installation of new
manufacturing processes incorporating pollution control technology, are not
material.
Hussmann, together with numerous other defendants, has been named as a
potentially responsible party ("PRP") in two state actions under the provisions
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA") involving off-site waste disposal. Hussmann is also involved in
several other, principally off-site, proceedings. None of these matters is
expected to involve any significant expense to Hussmann. Pepsi General is a de
minimus participant at six off-site locations. Midas has been named a PRP at one
Superfund site where its participation is also expected to be at the de minimus
level, and is also involved in certain removal and remedial activities relating
to underground storage tanks which are not anticipated to result in significant
expense to Midas.
Under the agreement pursuant to which Whitman sold Pneumo Abex Corporation
in 1988 and a subsequent settlement agreement entered into with Pneumo Abex in
September, 1991, Whitman has assumed indemnification obligations for certain
environmental liabilities of Pneumo Abex, net of any insurance recoveries.
Pneumo Abex has been and is subject to a number of federal, state and local
environmental cleanup proceedings, including proceedings under CERCLA at
off-site locations involving other major corporations which have also been named
as PRP's. Pneumo Abex also has been and is subject to private claims and several
lawsuits for remediation of properties currently or previously owned by Pneumo
Abex, and Whitman is subject to two such suits.
There is significant uncertainty in assessing the total cost of remediating
a given site and in determining any individual party's share in that cost. This
is due to the fact that the Pneumo Abex liabilities are at different stages in
terms of their ultimate resolution, and any assessment and determination are
inherently speculative during the early stages, depending upon a number of
variables beyond the control of any party. Additionally, the settlement of
governmental proceedings or private claims for remediation invariably involves
negotiations within broad cost ranges of possible remediation alternatives.
Furthermore, there are significant timing considerations in that a portion of
the expense involved and any resulting obligation of Whitman to indemnify Pneumo
Abex may not be incurred for a number of years.
In 1992, the United States Environmental Protection Agency ("EPA") issued a
Record of Decision ("ROD") under the provisions of CERCLA setting forth the
scope of expected remedial action at a Pneumo Abex facility in Portsmouth,
Virginia. The EPA has estimated that the cost of the remedial action necessary
to comply with an Amended ROD, issued in 1994, will total $31 million. In
January, 1996, Pneumo Abex executed a Consent Decree with the EPA agreeing to
implement remediation of areas associated with the former Portsmouth facility
operations. Whitman management is optimistic that the cost of implementation of
the remedy required by the Consent Decree will be less than the estimated cost
set forth in the Amended ROD. Additionally, in a lawsuit brought against other
PRPs which did not execute the Consent Decree, Pneumo Abex and Whitman have
recovered approximately $3.1 million in settlements and have obtained a
judgment, subject to appeal, against other financially viable PRPs for more than
40% of the past and future response costs at the Portsmouth site.
Management believes that potential insurance recoveries may defray a
portion of the expenses involved in meeting Pneumo Abex environmental
liabilities. In November, 1992, Jensen-Kelly Corporation, a Pneumo Abex
subsidiary, Pneumo Abex and certain other of its affiliates, and Whitman and
certain of its affiliates, filed a lawsuit against numerous insurance companies
in the Superior Court of California, Los Angeles County, seeking damages and
declaratory relief for insurance coverage and defense costs for environmental
claims. In 1996, Whitman and Pneumo Abex achieved settlements with several
carriers, and although optimistic it will receive additional recoveries, Whitman
is otherwise unable to predict the outcome of this litigation.
In the opinion of management, Whitman believes that the eventual resolution
of these claims and litigation, considering amounts accrued, but excluding
potential insurance recoveries, will not have a material adverse effect on
Whitman's financial condition or the results of operations.
Item 2. PROPERTIES.
Pepsi General's facilities include five bottling plants, four combination
bottling/canning plants, four canning plants and 69 distribution facilities,
including eleven distribution facilities in Poland. Eleven of the distribution
facilities are leased and approximately 13 percent of Pepsi General's production
is from its one leased plant. Midas operates four manufacturing plants in the
United States, of which three are owned and one is leased. In addition, Midas
maintains 13 warehouses in the United States and five warehouses in Canada, of
which two are owned and 16 are leased. At December 31, 1996, Midas operated 139
Midas Muffler Shops in the United States, 32 Midas Muffler Shops in Canada and
209 Midas Muffler Shops in seven other foreign countries. As of December 31,
1996, Hussmann operated 12 owned and nine leased manufacturing facilities in the
United States, Canada, Mexico, China, Chile and the United Kingdom. There are
two owned and 42 leased branch facilities in the United States, Canada, Mexico,
Hungary, Peru and the United Kingdom which sell, install and maintain Hussmann
products.
All facilities are adequately equipped and maintained, and capacity is
considered to be adequate for current needs.
In addition, Whitman engages in a variety of industrial, commercial and
residential real estate activities in the United States.
Item 3. LEGAL PROCEEDINGS.
Whitman and its subsidiaries are defendants in numerous lawsuits, none of
which, in the opinion of management, are expected to have a material adverse
effect on Whitman's results of operations or financial condition.
See also "Environmental Matters" in Item 1.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company is listed and traded on the New York,
Chicago and Pacific stock exchanges. The table below sets forth the reported
high and low sales prices as reported for New York Stock Exchange Composite
Transactions for Whitman common stock and indicates the Whitman dividends for
each quarterly period for the years 1996 and 1995.
<TABLE>
<CAPTION>
Common
-------------------------------------
High Low Dividend
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<S> <C> <C> <C>
1996:
- -----
1st quarter $ 25.000 $ 21.750 $ 0.095
2nd quarter 25.750 22.875 0.105
3rd quarter 24.625 21.875 0.105
4th quarter 25.125 22.375 0.105
1995:
- -----
1st quarter $ 19.375 $ 15.625 $ 0.085
2nd quarter 19.375 17.500 0.095
3rd quarter 21.625 18.625 0.095
4th quarter 23.375 20.125 0.095
</TABLE>
There were 18,223 shareholders of record at December 31, 1996.
Item 6. SELECTED FINANCIAL DATA.
See Index to Financial Information following signature page.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash flow from continuing operations continued strong in
1996, increasing by $40.1 million to $233.4 million. The improvement reflected a
higher level of earnings before depreciation and amortization. Cash used in
discontinued operations primarily related to environmental expenses, net of
insurance recoveries, of previously sold subsidiaries.
The Company's capital expenditure programs continued at a relatively high
level, reaching a combined total of $182.4 million (including investments in
joint ventures), compared with $253.9 million in 1995, which included the
acquisition of the Pepsi-Cola franchise in Cedar Rapids, Iowa. Included in the
expenditures in 1996 was $30.6 million invested in Pepsi General's joint venture
in Poland, including a new manufacturing facility. Capital spending in 1997
(excluding acquisitions) currently is projected to increase slightly from 1996
levels. Purchases and sales of investments principally relate to the Company's
insurance subsidiary, which provides certain levels of insurance for Whitman's
various operating companies. Funds provided by the operating companies are
invested by the insurance subsidiary and proceeds from sales are often used by
the insurance company to pay claims. A substantial portion of the purchases and
sales of such investments are reinvested as the investments mature. In 1996, the
Company liquidated $70 million of its investment portfolio to reduce its outside
indebtedness.
In spite of spending over $180 million on capital investments (including
joint ventures), $93 million to purchase additional treasury shares, and nearly
$43 million in dividends, the Company's total debt, including short-term debt,
increased by only $9.8 million in 1996. The modest increase in debt reflected
the Company's strong cash flow and the $70 million reduction in investments. In
1996, the Company issued $128.0 million of long-term debt (see Note 4), which
was used, in part, to replace $103.1 million of debt which came due in 1996.
At December 31, 1996, the Company had $300 million available under a
contractual revolving credit facility and $200 million available under its
commercial paper program. No amounts were being used from either facility at
December 31, 1996. The Company believes that with its strong cash flow, the
outlook for continued earnings improvements, its existing and available lines of
credit along with the potential for additional debt or equity offerings, it will
have sufficient resources to fund its future growth, including funds for capital
expenditures and possible acquisitions.
The Company uses financial derivative instruments to manage its interest
rate risk. A description of these transactions is discussed in Note 5 to the
Consolidated Financial Statements. The effects of such transactions on the
Company's results of operations and financial condition were not significant.
OPERATING RESULTS:
1996 COMPARED WITH 1995
For a description of the Company's major products and services and its
principal markets, reference is made to Part I, Item 1, Business, and to Note
12, Segment Reporting, to the Consolidated Financial Statements.
Sales and revenues increased by $164.8 million, or 5.6 percent, in 1996 to
$3,111.3 million.
Pepsi General's sales increased by $52.7 million in 1996, an increase of
3.6 percent over 1995. Included were revenues of $50.3 million from its
operations in Poland, a 44.5 percent increase over 1995. Unit case volume (which
represented approximately 88 percent of total domestic sales) in the U.S.
increased by 3.8 percent over 1995. The average net selling price on such case
volume declined slightly during 1996, reflecting competitive pricing conditions,
particularly in some of Pepsi General's major markets.
Midas' revenues increased by 4.9 percent to $604.2 million in 1996.
Approximately two-thirds of the increase came from Midas' international
operations, with European revenues up nearly 20 percent, reflecting higher
demand due to an increase in the number of shops from Midas' rapid expansion
programs. Canadian revenues also improved by more than six percent. Revenues in
the U.S. increased by 2.3 percent, resulting from an increase in the number of
Company-owned shops and higher product sales to the franchisees and other
customers.
Hussmann's revenues rose sharply in 1996 to $1,005.7 million, an increase
of $84.0 million, or 9.1 percent, over 1995. The improved revenues principally
were from their North American operations, where revenues increased by over 12
percent to approximately $800 million, reflecting an increase in industry demand
for supermarket equipment and strong acceptance of Hussmann's new Impact product
lines. Hussmann's Mexican operations revenues were up 16.2 percent, reflecting a
partial recovery from poor economic conditions, as well as a strong growth in
export sales. Offsetting these improvements, sales in the U.K. were adversely
affected by local restrictions on supermarket expansions. The Company's
consolidated gross profit increased by $78.1 million, or 7.6 percent, to $1.1
billion. The gross profit margin improved from 34.8 percent in 1995 to 35.5
percent in 1996. This improved margin, in spite of competitive pricing
pressures, reflected the benefits of lower ingredient and packaging costs at
Pepsi General, and effective controls over fixed overhead costs by all three
major subsidiaries.
Selling, general and administrative (S,G&A) costs increased by $52.6
million, or 7.9 percent, compared with the 5.6 percent increase in sales, and as
a result, S,G&A costs increased to 23.0 percent of sales, compared with 22.5
percent in 1995. The higher level of expenses reflected, among other items, cost
increases which were not recovered through pricing, and heavier promotional and
marketing efforts, particularly at Pepsi General and Midas.
The increase in amortization expense primarily reflected a full year's
amortization of goodwill from acquisitions made in 1995.
Operating income increased by 7.1 percent to $366.6 million, on a 5.6
percent increase in sales. Consolidated operating margins improved to 11.8
percent, up from 11.6 percent in 1995.
Pepsi General's operating income grew by 7.4 percent to $212.3 million in
1996. Included in these results were operating losses of $12.1 million in
Poland, which reflected, among other factors, a full year of operating costs at
all facilities. Pepsi General's domestic operating results improved by $15.4
million, or 7.4 percent, to $224.4 million. The improved performance in the U.S.
reflected the benefits of higher volumes and certain lower ingredient and
packaging costs, which more than offset the adverse effects of lower pricing.
Midas' operating earnings declined by $4.5 million, or 5.5 percent, to
$78.0 million. U.S. earnings declined due to relatively slow retail traffic in
Company-owned shops, as well as limited growth in product sales. The U.S.
results were also affected by higher product costs, and increased expenses for
promotional and other programs which are designed to generate future revenues
and to lower distribution costs. Foreign earnings continued to improve,
particularly in Europe, benefiting from the strong revenue growth.
Hussmann's earnings rebounded sharply, increasing by $15.1 million, or 19.2
percent, to $93.8 million. The sharp improvement reflected the benefits of the
higher volumes in North America, and higher earnings in Mexico as a result of
improved product demand. Earnings were adversely affected in the U.K., however,
where local zoning restrictions have curtailed demand.
Interest expense and interest income did not change significantly. Included
in other expense, net was an $8.7 million charge to Pepsi General's operations
in Poland, principally relating to asset write-downs at its joint venture, and
was related to, among other items, the discontinuation of certain product
packages. Other changes included net losses on other asset sales in 1996,
compared with modest gains in 1995. The amounts of such gains and losses,
individually or in the aggregate, were not material. Foreign currency gains and
losses were not significant.
1995 COMPARED WITH 1994
Sales and revenues increased by $287.7 million, or 10.8%, in 1995 to a
total of $2,946.5 million.
Pepsi General's revenues increased by $192.6 million in 1995, a 15.3
percent increase over 1994. Included were $34.8 million of revenues from the
Pepsi General operations in Poland, compared with only $0.8 million in 1994,
which reflected the start-up of such operations in late 1994. Unit case volume
(which represents approximately 88 percent of total domestic sales) in the U.S.
increased by 5.6 percent over 1994, including 0.8 percent from the Cedar Rapids,
Iowa franchise which was purchased in July, 1995. The remaining increase in
domestic unit volume was principally in the core Pepsi brands. The average net
selling price per case increased by approximately 6 percent in 1995, as Pepsi
General attempted to recover substantial increases in product and packaging
costs.
Midas' revenues increased by $32.9 million in 1995, up 6.1 percent, to
$576.1 million. Approximately two-thirds of the increase came from Midas'
European operations, where approximately one-half of the increase was
attributable to higher exchange rates. The higher foreign revenues also
reflected an increase in the number of company-owned shops, as Midas continued
its shop expansion program in Europe. U.S. revenues increased by 2.7 percent,
and reflected increased revenues from company-owned shops, higher product sales,
and increased royalty and rent-related revenues.
Hussmann's revenues increased by $62.2 million in 1995, a 7.2 percent
increase, to $921.7 million. The increase in sales was principally in Hussmann's
North American operations, reflecting improved demand for its product lines.
Included in these sales were $33.6 million of revenues of companies acquired
during the year, but this increase was offset by lower revenues (down $38.7
million) from Hussmann's Mexican operations. The reduction in Mexico reflected
both the devaluation of the peso and the sharp decline in the Mexican economy.
The Company's gross profit margin declined from 35.9 percent in 1994 to
34.8 percent in 1995. This unfavorable variance was principally caused by higher
product and packaging cost (primarily aluminum can costs, which increased by
approximately 25 percent) at Pepsi General. In addition, Hussmann experienced
some margin reductions, reflecting continuing competitive pricing pressure and
changes in sales mix. Midas' margins improved modestly.
Selling, general and administrative (S,G&A) expenses increased by $54.3
million in 1995, or 8.9 percent, compared with the 10.8 percent increase in
sales. As a result, S,G&A expenses, as a percentage of sales, declined to 22.5
percent in 1995, down from 22.9 percent in 1994. Pepsi General's and Hussmann's
S,G&A expenses grew at rates less than their respective revenue growth, while
Midas' expenses grew at a faster percentage than revenues, principally in Europe
where the increase reflected, among other items, the effects of higher exchange
rates as well as an increase in the number of company-owned shops.
Amortization expense increased slightly in 1995, principally reflecting
goodwill associated with recent acquisitions.
Operating income increased by 4.7 percent to $342.3 million in 1995,
compared with a 10.8 percent increase in revenues. Operating margins, as a
percent of sales, declined to 11.6 percent in 1995, down from 12.3 percent in
1994.
Pepsi General's operating income amounted to $197.7 million in 1995, $12.2
million, or 6.6 percent, above 1994's performance. Included in the results were
operating losses of $11.3 million in Poland, principally representing start-up
costs, compared with operating losses of $2.7 million in 1994. The increase in
operating earnings in the U.S. principally reflected the benefits of the
improved volumes and higher prices. Pepsi General's margins, however, were
affected adversely by the sharp increase in aluminum can costs.
Midas' operating earnings totaled a record $82.5 million, and exceeded
1994's performance by $7.3 million, or 9.7 percent. The improved performance was
principally in their U.S. operations and reflected the benefits of higher
product shipments, as well as higher royalty and rental revenues. Midas' foreign
operating results increased modestly, reflecting improved results in France,
Spain and Australia, offset by additional start-up expenses as Midas continued
to expand its company-owned shop network in Europe.
The operating results at Hussmann were down $3.8 million, or 4.6 percent,
to $78.7 million in 1995. Operating earnings in Mexico were $12.4 million below
1994, reflecting the peso devaluation and the deterioration of economic
conditions in Mexico. Excluding Mexico, North American operating results were up
12.5 percent over 1994, reflecting the benefits of higher volumes. Acquisitions
in China, Chile and the U.K. contributed approximately $2 million to operating
earnings in 1995.
Interest expense increased by $3.5 million in 1995, principally reflecting
higher debt levels. Interest income was unchanged, as the amounts of invested
funds did not change significantly during the year.
Other expense, net declined from $25.2 million in 1994 to $14.4 million in
1995. The change primarily related to modest gains on asset dispositions in
1995, compared with losses on similar transactions in 1994. There were no gains
or losses that were individually significant. Foreign currency gains and losses
also were not significant.
ENVIRONMENTAL MATTERS
The Company is involved, directly or as a possible indemnitor, in a number
of environmental proceedings and claims. The Company continues to actively
investigate such matters in an attempt to evaluate the Company's exposure to
each claim. In many instances, many other major corporations also have been
identified as potentially responsible parties. As discussed in Note 11 to the
Consolidated Financial Statements, the Company believes that it has made
adequate provision for such potential liabilities, excluding consideration of
possible insurance recoveries. However, it is not possible at this time to
determine what the Company's ultimate liability on these claims may be.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Information following signature page.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Whitman incorporates by reference the information contained under the
caption "Election of Directors" in its definitive proxy statement dated March
20, 1997, filed pursuant to Section 14(a) of the Securities Exchange Act of
1934, as amended.
The executive officers of Whitman and their ages as of March 1, 1997 were
as follows:
Age Position
--- --------
Bruce S. Chelberg 62 Chairman and Chief Executive Officer
Thomas L. Bindley 53 Executive Vice President
Frank T. Westover 58 Senior Vice President-Controller
Lawrence J. Pilon 48 Senior Vice President-Human Resources
John R. Moore 61 Corporate Vice President; President and Chief
Executive Officer, Midas International
Corporation
J. Larry Vowell 56 Corporate Vice President; President and Chief
Executive Officer, Hussmann Corporation
Charles H. Connolly 62 Vice President-Corporate Affairs and Investor
Relations
William B. Moore 55 Vice President, Secretary and General Counsel
Except as described in the following paragraph or as incorporated by
reference to the Registrant's definitive proxy statement, all of the executive
officers of Whitman have held positions which are the same or which involve
substantially similar functions as indicated above during the past five years.
Mr. Chelberg was elected Chairman and Chief Executive Officer in May, 1992.
Prior to that, Mr. Chelberg served as Executive Vice President of the Company
since 1985. Mr. Bindley joined Whitman Corporation as Executive Vice President
in April, 1992. Prior to joining Whitman Corporation, Mr. Bindley served as
Executive Vice President of Square D Corporation from August, 1986 through
September, 1991. Mr. Pilon joined Whitman Corporation as Senior Vice
President-Human Resources in February, 1994. Prior to joining Whitman
Corporation, Mr. Pilon served as Vice President-Human Resources and Secretary of
National Intergroup, Inc. from June, 1986 to January, 1994.
Item 11. EXECUTIVE COMPENSATION.
Whitman incorporates by reference the information contained under the
caption "Executive Compensation" and the last two paragraphs under the caption
"General Information" in its definitive proxy statement dated March 20, 1997,
filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Whitman incorporates by reference the information contained under the
captions "Principal Shareholders" and "Securities Ownership of Directors and
Executive Officers" in its definitive proxy statement dated March 20, 1997,
filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See Index to Financial Information and Exhibit Index.
(b) Through December 31, 1996, no reports on Form 8-K were filed subsequent
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 20th day of
March, 1997.
WHITMAN CORPORATION
By: /s/ FRANK T. WESTOVER
------------------------------
Frank T. Westover
Senior Vice President-Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on the 20th day of March, 1997.
Signature Title
* Bruce S. Chelberg Chairman and Chief
---------------------------- Executive Officer and Director
BRUCE S. CHELBERG (principal executive officer)
* Thomas L. Bindley Executive Vice President
---------------------------- (principal financial officer)
THOMAS L. BINDLEY
/s/ FRANK T. WESTOVER Senior Vice President-Controller
---------------------------- (principal accounting officer)
FRANK T. WESTOVER
* Herbert M. Baum Director
----------------------------
HERBERT M. BAUM
* Richard G. Cline Director
----------------------------
RICHARD G. CLINE
* James W. Cozad Director *By: /s/ FRANK T. WESTOVER
---------------------------- ---------------------
JAMES W. COZAD Frank T. Westover
Attorney-in-Fact
* Pierre S. DuPont Director March 20, 1997
----------------------------
PIERRE S. du PONT
* Archie R. Dykes Director
----------------------------
ARCHIE R. DYKES
* Charles W. Gaillard Director
----------------------------
CHARLES W. GAILLARD
* Jarobin Gilbert, Jr. Director
----------------------------
JAROBIN GILBERT, JR.
* Victoria B. Jackson Director
----------------------------
VICTORIA B. JACKSON
* Donald P. Jacobs Director
----------------------------
DONALD P. JACOBS
* Charles S. Locke Director
----------------------------
CHARLES S. LOCKE
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
----------------------
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1996
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Statement of Financial Responsibility
Independent Auditors' Report
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Selected Financial Data
Financial Statement Schedules:
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the financial statements
or related notes.
<PAGE>
STATEMENT OF FINANCIAL RESPONSIBILITY
The consolidated financial statements of Whitman Corporation and
subsidiaries have been prepared by management which is responsible for their
integrity and content. These statements have been prepared in accordance with
generally accepted accounting principles and include amounts which reflect
certain estimates and judgments by management. Actual results could differ from
these estimates.
The Board of Directors, acting through the Audit Committee of the Board,
has responsibility for determining that management fulfills its duties in
connection with the preparation of these consolidated financial statements. The
Audit Committee meets periodically and privately with the Independent Auditors
and with the internal auditors to review matters relating to the quality of the
financial reporting of the Company, the related internal controls and the scope
and results of their audits. The Committee also meets with management and the
internal audit staff to review the affairs of the Company.
To meet management's responsibility for the fair and objective reporting of
the results of operations and financial condition, the Company maintains systems
of internal controls and procedures to provide reasonable assurance of the
reliability of its accounting records. These systems include written policies
and procedures, a substantial program of internal audit and the careful
selection and training of its financial staff.
The Company's Independent Auditors, KPMG Peat Marwick LLP, are engaged to
audit the consolidated financial statements of the Company and to issue their
report thereon. Their audit has been conducted in accordance with generally
accepted auditing standards. Their report follows.
<PAGE>
KPMG Logo
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF WHITMAN CORPORATION:
We have audited the accompanying consolidated balance sheets of Whitman
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Whitman
Corporation and Subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 13, 1997
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31 (in millions)
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales and revenues $ 3,111.3 $ 2,946.5 $ 2,658.8
Cost of goods sold 2,008.0 1,921.3 1,704.7
---------- ---------- ----------
Gross profit 1,103.3 1,025.2 954.1
Selling, general and administrative expenses 716.7 664.1 609.8
Amortization expense 20.0 18.8 17.5
---------- ---------- ----------
Operating income 366.6 342.3 326.8
Interest expense (72.2) (74.6) (71.1)
Interest income 6.9 6.4 6.4
Other expense, net (25.6) (14.4) (25.2)
Unrealized investment loss -- -- (24.2)
---------- ---------- ----------
Income before income taxes 275.7 259.7 212.7
Income tax provisions 117.2 107.4 88.1
---------- ---------- ----------
Income from continuing operations before minority interest 158.5 152.3 124.6
Minority interest 19.1 18.8 18.2
---------- ---------- ----------
Income from continuing operations 139.4 133.5 106.4
Loss from discontinued operations after taxes (Note 2) -- -- (3.2)
---------- ---------- ----------
Net income $ 139.4 $ 133.5 $ 103.2
========== ========== ==========
Average number of common shares outstanding 106.4 106.2 106.2
========== ========== ==========
INCOME (LOSS) PER COMMON SHARE (IN DOLLARS):
Continuing operations $ 1.31 $ 1.26 $ 1.00
Discontinued operations -- -- (0.03)
---------- ---------- ----------
Net income $ 1.31 $ 1.26 $ 0.97
========== ========== ==========
Cash dividends per common share $ 0.41 $ 0.37 $ 0.33
========== ========== ==========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31 (in millions) 1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 76.8 $ 53.3
Receivables - net of allowance for doubtful accounts of $7.3 million in 1996 and
$5.7 million in 1995 396.9 378.5
Inventories:
Raw materials and supplies 95.4 84.5
Work in process 61.7 48.1
Finished goods 150.2 134.5
---------- ----------
Total inventories 307.3 267.1
Other current assets 74.0 62.2
---------- ----------
Total current assets 855.0 761.1
---------- ----------
Investments 181.3 253.7
Property (at cost):
Land 71.7 71.2
Buildings and improvements 355.8 340.0
Machinery and equipment 1,017.6 945.6
---------- ----------
Total property 1,445.1 1,356.8
Accumulated depreciation and amortization (710.8) (659.3)
---------- ----------
Net property 734.3 697.5
---------- ----------
Intangible assets, net of accumulated amortization of $164.5 million in 1996 and
$143.7 million in 1995 553.8 568.8
Other assets 85.0 82.2
---------- ----------
Total assets $ 2,409.4 $ 2,363.3
========== ==========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31 (in millions) 1996 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 94.3 $ 93.8
Accounts and dividends payable 266.5 248.6
Income taxes payable 7.2 9.2
Accrued expenses:
Salaries and wages 44.2 46.4
Interest 21.7 21.2
Other expenses 92.1 88.4
---------- ----------
Total current liabilities 526.0 507.6
---------- ----------
Long-term debt 837.5 828.2
Deferred income taxes 47.1 33.4
Other liabilities 118.1 141.0
Minority interest 238.5 225.3
Shareholders' equity:
Common stock (no par, 250.0 million shares authorized;
110.6 million issued in 1996 and 109.2 million issued in 1995) 456.3 427.8
Retained income 426.7 336.6
Cumulative translation adjustment (82.5) (80.3)
Unrealized investment gain 1.8 9.7
Treasury stock (8.0 million shares in 1996 and 4.0 million shares in 1995) (160.1) (66.0)
---------- ----------
Total shareholders' equity 642.2 627.8
---------- ----------
Total liabilities and shareholders' equity $ 2,409.4 $ 2,363.3
========== ==========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31 (in millions) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 139.4 $ 133.5 $ 106.4
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 115.8 108.3 98.0
Unrealized investment loss -- -- 24.2
Other 24.6 11.6 23.9
Changes in assets and liabilities, exclusive of acquisitions:
Increase in receivables (17.6) (21.9) (11.7)
Increase in inventories (40.5) (35.1) (10.3)
Increase in payables 17.5 17.5 5.7
Net change in other assets and liabilities (5.8) (20.6) (24.6)
--------- --------- ---------
Net cash provided by continuing operations 233.4 193.3 211.6
Net cash used by discontinued operations (13.2) (19.7) (5.8)
--------- --------- ---------
Net cash provided by operating activities 220.2 173.6 205.8
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (151.4) (174.8) (127.4)
Proceeds from sales of property 12.7 12.5 18.2
Companies acquired, net of cash acquired -- (60.5) --
Investments in joint ventures (31.0) (18.6) (4.5)
Purchases of investments (92.6) (221.4) (168.8)
Proceeds from sales of investments 176.1 213.4 156.9
--------- --------- ---------
Net cash used in investing activities (86.2) (249.4) (125.6)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of bank lines of credit and commercial paper (15.0) (27.5) (41.1)
Proceeds from issuance of long-term debt 128.0 278.4 231.9
Repayment of long-term debt (103.1) (147.8) (221.1)
Net increase in notes payable 1.3 2.5 --
Issuance of common stock 14.6 12.8 6.0
Treasury stock purchases (93.2) (18.8) (42.5)
Common dividends (42.9) (38.8) (34.8)
--------- --------- ---------
Net cash provided by (used in) financing activities (110.3) 60.8 (101.6)
--------- --------- ---------
Effects of exchange rate changes on cash and cash equivalents (0.2) (3.0) (0.3)
--------- --------- ---------
Change in cash and cash equivalents 23.5 (18.0) (21.7)
Cash and cash equivalents at beginning of year 53.3 71.3 93.0
--------- --------- ---------
Cash and cash equivalents at end of year $ 76.8 $ 53.3 $ 71.3
========= ========= =========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended
December 31, 1996, Cumulative Unrealized
1995 and 1994 Common Stock Retained Translation Investment Treasury Stock
----------------------- -------------------
(dollars in millions) Shares Amount Income Adjustments Gain/(Loss) Shares Amount
------------ ------ ------- ------------ ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 107,510,558 $ 404.4 $ 172.4 $ (52.3) $ -- (419,242) $ (7.5)
----------- ------- ------- ------- ---------- ---------- ------
Net income 103.2
Treasury stock purchases (2,656,374) (42.5)
Stock compensation plans 594,432 8.8 (0.9) 2,300 --
Translation adjustments 0.5
Unrealized investment gain 1.3
Dividends declared (34.8)
----------- ------- ------- ------- ---------- ---------- ------
Balance, December 31, 1994 108,104,990 413.2 239.9 (51.8) 1.3 (3,073,316) (50.0)
----------- ------- ------- ------- ---------- ---------- ------
Net income 133.5
Treasury stock purchases (1,034,726) (18.8)
Stock compensation plans 1,094,844 14.6 2.0 (19,564) 0.1
Common stock issued for
acquisitions 126,700 2.7
Translation adjustments (28.5)
Unrealized investment gain 8.4
Dividends declared (38.8)
----------- ------- ------- ------- ---------- ---------- ------
Balance, December 31, 1995 109,199,834 427.8 336.6 (80.3) 9.7 (4,000,906) (66.0)
----------- ------- ------- ------- ---------- ---------- ------
Net income 139.4
Treasury stock purchases (3,989,894) (93.2)
Stock compensation plans 1,395,959 28.5 (6.4) (29,188) (1.2)
Common stock issued for
acquisitions 11,614 0.3
Translation adjustments (2.2)
Unrealized investment loss (7.9)
Dividends declared (42.9)
----------- ------- ------- ------- ---------- ---------- -------
Balance, December 31, 1996 110,595,793 $ 456.3 $ 426.7 $ (82.5) $ 1.8 (8,008,374) $(160.1)
=========== ======= ======= ======= ========== ========== =======
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Whitman Corporation and all of its significant subsidiaries (the
Company).
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of deposits with
banks and financial institutions which are unrestricted as to withdrawal or use,
and which have original maturities of three months or less.
INVENTORIES. Inventories are valued at the lower of cost (principally determined
on the first-in, first-out or average methods) or net realizable value.
INVESTMENTS. Investments include real estate held for sale, principally at
Illinois Center, a large single location, mixed use development located on the
Chicago lakefront. The investments in real estate are carried at cost which
management believes is lower than net realizable value. When real estate is
sold, the net proceeds are deducted from the carrying value. Also included are
domestic and U.S. dollar-denominated foreign government securities and
securities guaranteed by such governments or their agencies, bank obligations
and corporate obligations (which are recorded at fair market value), as well as
other miscellaneous investments.
PROPERTY. Depreciation is computed on the straight-line method and includes
depreciation for properties under capital leases. When property is sold or
retired, the cost and accumulated depreciation are eliminated from the accounts
and gains or losses are recorded in other expense, net. Expenditures for
maintenance and repairs are expensed as incurred. The approximate ranges of
annual depreciation rates for major property classifications are as follows:
Buildings 2% - 5%
-------------------------------------------------------
Machinery and equipment 5% - 33%
-------------------------------------------------------
INTANGIBLE ASSETS. Intangible assets primarily consist of the excess of cost
over fair market value of tangible assets of acquired businesses, reflecting
premiums paid for consumer franchises, brand names, trademarks, distribution
systems, manufacturing know-how and other intangibles. Such premiums generally
are being amortized on straight-line bases over 40 years, with minor amounts
being amortized over shorter periods. The Company evaluates, at least on an
annual basis, the carrying value of its goodwill by reviewing undiscounted cash
flows by operating units. If the sum of the projected undiscounted cash flows
over the remaining lives of the related assets does not exceed the carrying
value of the related goodwill, goodwill would be adjusted for the difference
between the fair value and the carrying value of such goodwill. The Company does
not believe there has been any material impairment of its goodwill.
INCOME PER COMMON SHARE. Income per common share is based upon the weighted
average number of common and common equivalent shares outstanding, assuming the
exercise of stock options where dilutive.
REVENUE RECOGNITION. Revenue is recognized when title to a product is
transferred to the customer or upon completion of a service.
ADVERTISING. Advertising expenditures are expensed as incurred.
STOCK BASED COMPENSATION. In 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 -
Accounting for Stock-Based Compensation. The Company has elected to continue to
apply the provisions of Accounting Principles Board (APB) Opinion No. 25 and to
display the estimated proforma effects measured under the new accounting
pronouncement in the Notes to the Consolidated Financial Statements (see
Note 8).
<PAGE>
INTEREST RATE AND CURRENCY SWAPS. The Company enters into a variety of
interest
rate and currency swaps in its management of interest rate and foreign currency
exposures. The differential to be paid or received is accrued as interest rates
change and is recognized over the lives of the agreements. Realized and
unrealized gains and losses on foreign currency transactions are recognized
currently in other expense, net.
2. DISCONTINUED OPERATIONS
In the fourth quarter of 1994, the Company recorded a $3.2 million
after-tax charge to discontinued operations. This charge was a result of an
on-going evaluation of the Company's potential liabilities for environmental
claims which principally relate to previously sold subsidiaries (see Note 11).
As a result of additional claims, additional information and experience
concerning possible remediation costs, as well as continuing legal, consulting
and other related expenses, the Company provided $46.8 million ($29.9 million
after tax) for additional estimated expenses relating to these potential
environmental liabilities. The charge also reflected settlement of the Company's
income tax audits for the years 1980-1987 with the Internal Revenue Service
(IRS), which included some large potential claims for issues related to
previously discontinued operations. As a result of these settlements, the
Company restored $26.7 million to income for tax accruals no longer deemed
necessary.
3. INCOME TAX PROVISIONS
The income tax provisions consisted of:
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 77.0 $ 72.6 $ 82.1
Foreign 10.1 11.8 16.3
State and local 13.0 10.0 13.6
------- ------- -------
Total current 100.1 94.4 112.0
======= ======= =======
Deferred:
Federal 15.0 9.7 (21.4)
Foreign 0.7 0.4 (1.6)
State and local 1.4 2.9 (0.9)
------- ------- -------
Total deferred 17.1 13.0 (23.9)
------- ------- -------
Income tax provisions $ 117.2 $ 107.4 $ 88.1
======= ======= =======
</TABLE>
<PAGE>
The items which gave rise to differences between the income tax provisions
in the income statements and income taxes computed at the U.S. statutory rate
are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
(dollars in millions) Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax expense computed at statutory rate $ 96.5 35.0 $ 90.9 35.0 $ 74.4 35.0
State income taxes, net of federal income tax benefit 9.3 3.4 8.4 3.2 8.3 3.9
Higher foreign effective tax rates 7.9 2.8 5.8 2.2 4.1 1.9
Goodwill amortization 4.9 1.8 5.2 2.0 5.1 2.4
Other items, net (1.4) (0.5) (2.9) (1.0) (3.8) (1.8)
------- ---- ------- ---- ------- ----
Income tax provisions $ 117.2 42.5 $ 107.4 41.4 $ 88.1 41.4
======= ==== ======= ==== ======= ====
</TABLE>
Pretax income from foreign operations amounted to $9.3 million, $18.9
million, and $31.6 million in 1996, 1995 and 1994, respectively. U.S. income
taxes have not been provided on the undistributed income ($120.6 million) of the
Company's foreign subsidiaries which currently is not intended to be remitted to
the U.S.
The IRS has completed its examinations of the Company's Federal income tax
returns through 1987. The IRS had proposed adjustments for the years 1980-1987
which would have substantially increased the Company's tax liability. The
Company has settled all issues for these years, and accruals which were no
longer required were credited to income from continuing operations or to income
from discontinued operations, as appropriate (see Note 2). The accruals which
have been restored to income from continuing operations in 1994 were reflected
in "other items, net" in the table above.
Deferred income taxes are created by "temporary differences" which exist
between amounts of assets and liabilities recorded for financial reporting
purposes and such amounts as reported under income tax regulations. These
temporary differences, which gave rise to deferred tax assets and liabilities at
December 31, are attributable to:
<PAGE>
<TABLE>
<CAPTION>
(in millions) 1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Provision for closed and sold businesses $ 30.7 $ 33.9
Lease transactions 15.8 17.8
Self-insurance provisions 13.8 18.6
Postretirement benefit accruals 8.6 11.9
Other 45.7 36.3
------- -------
Total deferred tax assets 114.6 118.5
------- -------
Deferred tax liabilities:
Property, plant and equipment 73.5 71.0
Pensions 7.0 8.8
Intangibles 10.9 9.2
Other 52.5 50.5
------- -------
Total deferred tax liabilities 143.9 139.5
------- -------
Net deferred tax liability $ 29.3 $ 21.0
======= =======
Net deferred tax liability (asset) included in:
"Other current assets" $ (17.8) $ (12.4)
"Deferred income taxes" 47.1 33.4
------- -------
Net deferred tax liability $ 29.3 $ 21.0
======= =======
</TABLE>
<PAGE>
4. DEBT
Debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1996 1995
--------- ---------
<S> <C> <C>
6.3% to 6.9% notes due 2000 and 2005 $ 136.5 $ 136.5
7.5% notes due 2003 125.0 125.0
7.3% and 7.4% notes due 2026 ($100 million and $25 million due 2004 and 2008,
respectively, at option of note holder) 125.0 --
6.5% notes due 2006 100.0 100.0
7.6% notes due 2015 100.0 100.0
8.3% notes due 2007 100.0 100.0
7.5% notes due 2001 75.0 75.0
8.1% notes due 1997 50.5 50.5
Term loan agreements and notes due 1997 through 2000, effective interest rates 5.5% to 8.0% 95.0 125.0
Notes due 1996, effective interest rate 6.1% -- 70.0
Commercial paper and revolving credit borrowings, effective interest rate 5.7% -- 15.0
Obligations under capital leases 14.5 17.4
Various other debt 15.2 12.3
--------- ---------
Total debt 936.7 926.7
Less: Amount due within one year 94.3 93.8
Unamortized discount 4.9 4.7
--------- ---------
Total long-term debt $ 837.5 $ 828.2
========= =========
</TABLE>
The Company maintains a $200 million commercial paper program. There were
no borrowings under this program at December 31, 1996, while $15 million was
outstanding at December 31, 1995. The Company also has a contractual revolving
credit facility which permits it to borrow up to $300 million. The interest
rates on the revolving credit facility, expiring in 2000, may be floating or
fixed and are based on domestic rates or the London Interbank Offered Rate
("LIBOR") at the option of the Company. There were no borrowings under the
revolving credit facility at either December 31, 1996 or 1995. As such, the
entire $300 million of the revolving credit facility remained unused and
available to back the Company's commercial paper borrowings.
The fees payable on the unused portion of such commitments are not significant.
The amounts of long-term debt maturing in 1998 through 2001 are: $41.4
million, $11.2 million, $106.8 million, and $76.3 million, respectively.
Interest expense included $1.7 million, $1.6 million and $1.9 million for
1996, 1995 and 1994, respectively, relating to liabilities under capital lease
agreements. Interest capitalized during periods of construction was not
significant.
The Company has pledged certain assets, consisting predominantly of
equipment and buildings, with a net book value of $91.3 million at December 31,
1996, as collateral for various long-term loan agreements. Certain of the
Company's financing arrangements contain restrictions which, among other
features, require maintenance of certain financial ratios. The Company is in
compliance with these debt covenants.
<PAGE>
5. FINANCIAL INSTRUMENTS
The Company uses financial derivative instruments to manage its interest
rate risk. Interest rate swap transactions and forward rate contracts generally
involve the exchange of fixed and floating rate interest payment obligations
without the exchange of the underlying notional amounts.
The Company has entered into certain interest rate swap agreements with
commercial and investment banks in which it pays a floating interest rate and
receives a fixed interest rate. During 1995, the Company also entered into
several forward rate agreements. At December 31, 1996, the Company had a $40
million interest rate swap related to its 6.5% notes due 2006, in which it pays
5.6% and receives 5.2%. The swap matures in 1997.
The notional amounts related to the Company's interest rate swap
transactions and forward rate agreement activity for 1995 and 1996 are
summarized as follows (in millions):
<TABLE>
<CAPTION>
Interest Rate Swaps Forward Rate Agreements
---------------------------- ----------------------------
Pay Fixed Pay Variable Pay Fixed Pay Variable
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ -- $ 165.0 $ -- $ --
-------- --------- -------- -------
New contracts -- -- 225.0 --
Expired contracts -- -- (60.0) --
-------- --------- -------- -------
Balance, December 31, 1995 -- 165.0 165.0 --
-------- --------- -------- -------
Expired contracts -- (125.0) (165.0) --
-------- --------- -------- -------
Balance, December 31, 1996 $ -- $ 40.0 $ -- $ --
======== ========= ======== =======
</TABLE>
Whitman's interest rate hedging programs had no significant impact on the
annual weighted average cost of debt in 1996 and increased it from 8.2 percent
to 8.3 percent in 1995 and from 8.7 percent to 9.0 percent in 1994. Interest
expense was increased by $1.5 million in 1995 and $2.1 million in 1994 as a
result of hedging programs.
The Company previously entered into foreign currency swap agreements to
reduce the effect of changes in foreign exchange rates on its debt denominated
in foreign currencies. Substantially all foreign currency denominated debt
outstanding at December 31, 1994, and its related interest payments had been
hedged in U.S. dollars. Under the hedge agreements, in January, 1995, the
Company repaid the 138.2 million Swiss franc debt at an effective exchange rate
of 2.764 Swiss francs per U.S. dollar ($50.0 million), compared to the actual
exchange rate of 1.288 Swiss francs per U.S. dollar ($107.3 million).
Additionally, in February, 1995, the Company repaid the 50 million Canadian
dollar debt at an effective exchange rate of 1.312 Canadian dollars per U.S.
dollar ($38.1 million), compared to the actual exchange rate of 1.403 Canadian
dollars per U.S. dollar ($35.6 million).
Assuming the Company had left the interest payments payable in foreign
currency (i.e., unhedged), the Company's interest expense would have decreased
by less than $0.1 million in 1995 and by $0.3 million in 1994, respectively.
Consequently, the impact of hedging had no material effect on the weighted
average cost of borrowing in 1995 or 1994.
<PAGE>
At December 31, 1996, the Company had $82.3 million in floating rate debt
exposure (including notional principal of $40.0 million on interest rate swap
agreements). Substantially all of the floating rate exposure is related to six
month LIBOR rates. If the six month LIBOR rates increased by 50 basis points
(0.50 percent), the Company's 1996 interest expense related to the floating rate
debt outstanding during 1996 would have increased by an additional $0.8 million.
As of the end of each of the last two years, the Company had no deferred
gains or losses related to terminated interest rate swap agreements.
The Company periodically monitors its financial instrument positions and
the credit ratings of its counterparties and limits the amount of exposure with
any one counterparty. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements. The
Company does not anticipate nonperformance by any of the counterparties.
The fair market value of the Company's floating rate debt as of December
31, 1996 approximated its carrying value. The fixed rate debt of the Company had
a carrying value of $894.4 million and a fair market value of $905.4 million at
December 31, 1996. The fair market value of the fixed rate debt was based on
quotes from financial institutions for instruments with similar characteristics
or upon discounting future cash flows.
6. PENSION AND OTHER POSTRETIREMENT PLANS
Company-sponsored defined benefit pension plans. Substantially all of the
Company's U.S. employees are covered under various defined benefit pension plans
sponsored and funded by the Company. Plans covering salaried employees provide
pension benefits based on years of service and generally are limited to a
maximum of 20 percent of the employees' average annual compensation during the
five years preceding retirement. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. Plan assets are
invested primarily in common stocks, corporate bonds and government securities.
Net periodic pension cost for 1996, 1995 and 1994 included the following
components:
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during period $ 9.1 $ 7.7 $ 7.5
Interest cost on projected benefit obligation 18.7 17.9 16.4
Actual return on assets (31.6) (37.8) (6.3)
Net amortization and deferral 10.9 18.4 (12.2)
-------- -------- --------
Total net periodic pension cost $ 7.1 $ 6.2 $ 5.4
======== ======== ========
</TABLE>
Pension costs are funded in amounts not less than minimum levels required
by regulation. The principal economic assumptions used in the determination of
net periodic pension cost include the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 7.0%
Expected long-term rate of return on assets 9.5% 9.5% 10.0%
Rates of increase in compensation levels 5.0% 6.0% 4.5%
</TABLE>
<PAGE>
The following table reconciles the pension plans' funded status to the
amounts recognized in the Company's balance sheets as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(in millions) Benefits Exceed Assets Benefits Exceed Assets
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation
(measured as of September 30):
Vested benefit obligation $(174.5) $ (36.9) $(155.0) $ (40.1)
======= ======= ======= =======
Accumulated benefit obligation $(182.8) $ (41.0) $(162.1) $ (46.2)
======= ======= ======= =======
Projected benefit obligation $(212.5) $ (45.0) $(189.5) $ (49.5)
Plan assets at fair market value (measured as of September 30) 245.6 32.3 209.3 40.7
------- ------- ------- -------
Plan assets in excess of (less than) projected benefit obligation 33.1 (12.7) 19.8 (8.8)
------- ------- ------- -------
Unrecognized net asset at transition to SFAS No. 87 (3.0) -- (3.2) (0.4)
Unrecognized prior service cost 12.7 9.7 13.9 5.7
Unrecognized net loss (gain) (18.5) 2.1 (7.7) 2.6
Additional liability required to recognize minimum liability -- (8.3) -- (5.7)
------- ------- ------- -------
Prepaid (accrued) pension cost recognized on balance sheets $ 24.3 $ (9.2) $ 22.8 $ (6.6)
======= ======= ======= =======
</TABLE>
The principal economic assumptions used in determining the above benefit
obligations were a discount rate of 7.5 percent and a rate of increase in future
compensation levels of 5.0 percent in both 1996 and 1995.
COMPANY-SPONSORED DEFINED CONTRIBUTION PLANS. Substantially all former U.S.
salaried employees, certain U.S. hourly employees and certain Australian and
Canadian employees participate in voluntary, contributory defined contribution
plans to which the Company makes partial matching contributions. Company
contributions to these plans amounted to $10.5 million, $10.5 million and $9.7
million in 1996, 1995 and 1994, respectively.
MULTI-EMPLOYER PENSION PLANS. The Company's subsidiaries participate in a number
of multi-employer pension plans which provide benefits to certain unionized
employee groups of the Company. Amounts contributed to the plans totaled $6.2
million, $5.5 million and $4.8 million in 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company provides substantially
all former U.S. salaried employees who retired prior to July 1, 1989 and
selected other employees in the U.S. and Canada with certain life and health
care benefits. U.S. salaried employees retiring after July 1, 1989 generally are
required to pay the full cost of these benefits. Eligibility for these benefits
varies with the employee's classification prior to retirement. Benefits are
provided through insurance contracts or welfare trust funds. The insurance plans
generally are financed by monthly insurance premiums and are based upon the
prior year's experience. Benefits paid from a welfare trust are financed by
monthly deposits which approximate the amount of current claims and expenses.
The Company has the right to modify or terminate these benefits.
<PAGE>
Net periodic cost of postretirement benefits other than pensions for 1996,
1995 and 1994 included the following components:
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 0.2 $ 0.2 $ 0.3
Interest cost on accumulated postretirement benefit obligation 2.0 2.2 2.2
Net amortization and deferral (0.6) (0.7) 0.4
------ ------ ------
Net periodic postretirement benefit cost $ 1.6 $ 1.7 $ 2.9
====== ====== ======
</TABLE>
The principal economic assumptions used in the determination of net
periodic cost of postretirement benefits other than pensions included the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 7.0%
Rate of increase in compensation levels 5.0% 6.0% 4.5%
Rate of increase in the per capita cost 9.5% in 1996 9.9% in 1995 10.3% in 1994
of covered health care benefits decreasing decreasing decreasing
gradually gradually gradually
to 5.5% by to 6.5% by to 5.0% by
the year 2006 the year 2006 the year 2006
</TABLE>
The Company's postretirement life and health care plans are not funded. The
unfunded status of the plans as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions) 1996 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 22.5 $ 25.6
Fully eligible active plan participants 0.8 0.5
Other active plan participants 4.8 3.0
------- -------
Total 28.1 29.1
------- -------
Plan assets at fair market value -- --
Accumulated postretirement benefit obligation in excess of plan assets 28.1 29.1
Unrecognized net gain 8.9 8.8
Unrecognized prior service cost 0.2 0.2
------- -------
Accrued postretirement benefit cost $ 37.2 $ 38.1
======= =======
</TABLE>
<PAGE>
The principal economic assumptions used in determining the above benefit
obligations were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Discount rate 7.5% 7.5%
Rate of increase in compensation levels 5.0% 5.0%
Rate of increase in the per capita cost of covered 9.1% in 1997 9.5% in 1996
health care benefits decreasing gradually decreasing gradually
to 5.5% by the year 2007 to 5.5% by the year 2006
</TABLE>
Increasing the assumed health care cost trend rate by 1 percentage point
would have increased the accumulated postretirement benefit obligation at
December 31, 1996 by $2.2 million and net periodic postretirement benefit cost
for 1996 by $0.2 million. Decreasing the assumed health care cost trend rate by
1 percentage point would have reduced the accumulated postretirement benefit
obligation at December 31, 1996 by $2.0 million and the net periodic
postretirement benefit cost for 1996 by $0.2 million.
Multiemployer postretirement medical and life insurance. The Company's
subsidiaries participate in a number of multiemployer plans which provide health
care and survivor benefits to unionized employees during their working lives and
after retirement. Portions of the benefit contributions, which cannot be
disaggregated, related to postretirement benefits for plan participants. Total
amounts charged against income and contributed to the plans (including benefit
coverage during their working lives) amounted to $9.4 million, $6.0 million, and
$5.5 million in 1996, 1995 and 1994, respectively.
7. LEASES
At December 31, 1996, annual minimum rental payments under capital and
operating leases that have initial noncancellable terms in excess of one year
were as follows:
<TABLE>
<CAPTION>
Capital Operating
(in millions) Leases Leases
--------- ---------
<S> <C> <C>
1997 $ 2.3 $ 57.9
1998 2.2 48.7
1999 2.1 38.4
2000 2.0 30.4
2001 2.0 24.4
Thereafter 14.3 111.5
------- --------
Total minimum lease payments 24.9 $ 311.3
========
Less imputed interest 10.4
-------
Present value of minimum lease payments $ 14.5
=======
</TABLE>
<PAGE>
Minimum payments under operating leases have not been reduced by $118.4
million of sublease rental income which is due in the future under
noncancellable subleases.
Total rent expense applicable to operating leases amounted to $37.6
million, $36.3 million and $33.2 million in 1996, 1995 and 1994, respectively.
These amounts have been reduced by sublease rental income of $23.2 million,
$22.2 million and $21.4 million, respectively. A majority of the Company's
leases provide that the Company pay taxes, maintenance, insurance and certain
other operating expenses.
8. STOCK OPTIONS AND SHARES RESERVED
The Company's Stock Incentive Plan (the "Plan"), originally approved by
shareholders in 1982 and subsequently amended from time to time, provides for
granting incentive stock options, nonqualified stock options, related stock
appreciation rights (SARs), restricted stock awards, and performance awards or
any combination of the foregoing. Incentive stock options and nonqualified stock
options are exercisable during a ten-year period beginning six months to three
years after the date of grant. Stock appreciation rights have been granted with
respect to certain nonqualified and incentive stock options. All options granted
were at fair market value at the date of grant.
Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------------
Range of Weighted Average
Shares Exercise Prices Exercise Price
-------------- ------------------- -----------------
<S> <C> <C> <C>
Balance, January 1, 1994 5,545,167 $ 6.937 - $ 15.474 $ 12.863
---------- ------------------- ---------
Granted 660,400 15.688 - 17.250 15.697
Exercised or surrendered for SARs (496,240) 10.288 - 15.875 12.541
Recaptured or terminated (5,134) 13.563 - 15.688 14.887
---------- ------------------- ---------
Balance, December 31, 1994 5,704,193 6.937 - 17.250 13.217
---------- ------------------- ---------
Granted 926,400 18.250 - 19.438 18.254
Exercised or surrendered for SARs (1,014,328) 6.937 - 18.250 12.902
Recaptured or terminated (14,500) 12.875 - 18.250 15.750
---------- ------------------- ---------
Balance, December 31, 1995 5,601,765 10.288 - 19.438 14.101
---------- ------------------- ---------
Granted 2,408,600 22.656 - 25.313 25.274
Exercised or surrendered for SAR's (1,174,244) 10.288 - 18.250 13.363
Recaptured or terminated (29,034) 15.688 - 25.313 22.069
---------- ------------------- ---------
Balance, December 31, 1996 6,807,087 11.226 - 25.313 18.147
========== =================== =========
</TABLE>
<PAGE>
The number of options exercisable at December 31, 1996 was 3,577,553 shares
with a weighted-average exercise price of $13.515, compared with options
exercisable of 4,009,931 shares at December 31, 1995 and 4,107,793 shares at
December 31, 1994 at weighted-average exercise prices of $13.021 and $12.816,
respectively. At December 31, 1996, there were 2,860,844 shares available for
future grants. The following table summarizes information regarding stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------------------
Weighted-Average
Range of Remaining Life Weighted-Average Exercisable Weighted-Average
Exercise Prices Shares (in years) Exercise Price Shares Exercise Price
- ----------------- --------- ---------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$11.226-$16.313 3,563,087 4.9 $ 13.339 3,343,953 $ 13.185
$17.250-$25.313 3,244,000 9.1 23.429 233,600 18.247
--------- --- ----------- --------- -----------
Total Options 6,807,087 6.9 $ 18.147 3,577,553 $ 13.515
========= === =========== ========= ===========
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" requires, among
other items, that the Company disclose either in the Consolidated Statement of
Income or in the Notes to the Consolidated Financial Statements an estimate of
the cost of stock options granted to employees. The Company does not believe
that the granting of options at current market value to its employees represents
a cost to the Company and that estimates of such costs, if any, may vary
substantially from any ultimate value realized by the employees. As a result,
the Company has elected to continue to account for stock options granted to
employees under APB Opinion No. 25. However, using the Black-Scholes model and
the following assumptions, the estimated fair value of an option at the dates of
grant in 1996 and 1995 was $5.72 and $4.78, respectively.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Risk-free interest rate 6.5% 6.9%
Expected dividend yield 1.9% 1.9%
Expected volatility 16.7% 17.7%
Estimated lives of options (in years) 5.0 5.0
</TABLE>
Based upon the above assumptions, the Company's proforma net income and per
share earnings would have been:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income (in millions) $ 136.6 $ 132.9
Per share earnings (in dollars) $ 1.28 $ 1.25
</TABLE>
Options granted in 1996 and 1995 vest equally each year over a three year
period. As a result, the estimated costs indicated above reflect only a partial
vesting of such options and does not consider the proforma costs for options
granted before 1995. When fully vested, the estimated proforma compensation
costs for each year would be higher than indicated above.
<PAGE>
The Company granted 271,700, 98,900 and 110,200 restricted shares of stock
at a weighted-average fair value (at the dates of grant) of $25.247, $18.180 and
$15.527 in 1996, 1995 and 1994, respectively, to key members of management under
the Plan. The Company recognized compensation expense of $2.9 million, $1.5
million and $0.8 million in 1996, 1995, and 1994, respectively, relating to
these grants. At December 31, 1996, there were 353,151 restricted shares of
stock outstanding under the Plan.
9. SHAREHOLDER RIGHTS PLAN AND SECOND PREFERRED STOCK
In 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock, without par value, of the Company. Each Right entitles
the registered holder to purchase from the Company one one-hundredth of a share
of Junior Participating Second Preferred Stock (Series 1), without par value, of
the Company at a price of $120 per one one-hundredth of a share of such Second
Preferred Stock, subject to adjustment. The Rights will become exercisable if
someone buys 15 percent or more of the Company's common stock. In addition, if
someone buys 15 percent or more of the Company's common stock, each right will
entitle its holder (other than that buyer) to purchase a number of shares of the
Company's common stock having a market value of twice the Right's $120 exercise
price. If the Company is acquired in a merger, each Right will entitle its
holder to purchase a number of the acquiring company's common shares having a
market value at the time of twice the Right's exercise price.
Prior to the acquisition of 15 percent or more of the Company's stock, the
Rights can be redeemed by the Board of Directors for one cent per Right. The
Company's Board of Directors also is authorized to reduce the threshold to 10
percent or increase it to not more than 20 percent. The Rights will expire on
January 30, 1999. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the per-share earnings of
the Company.
The Company has 10 million authorized shares of Second Preferred Stock. In
January, 1989, the Company's Board of Directors designated 2.5 million shares of
the Second Preferred Stock as Junior Participating Second Preferred Stock
(Series 1) in conjunction with the Shareholder Rights Plan. There is no Second
Preferred Stock issued or outstanding.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by continuing operations reflects cash payments or cash
receipts as follows:
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest paid $ 70.5 $ 78.9 $ 61.0
Interest received (6.8) (6.6) (6.8)
Income taxes paid 110.2 99.3 115.4
Income tax refunds (7.5) (26.4) (8.6)
</TABLE>
There were no significant acquisitions in either 1996 or 1994. Details of
businesses acquired in purchase transactions in 1995 were as follows:
<PAGE>
<TABLE>
<CAPTION>
(in millions) 1995
---------
<S> <C>
Fair value of assets acquired $ 85.4
Liabilities assumed (13.0)
--------
Cost of acquisitions 72.4
Notes issued to sellers (7.4)
Common stock issued to sellers (2.7)
Cash and cash equivalents acquired (1.8)
--------
Net cash paid for acquisitions $ 60.5
========
</TABLE>
The Company acquired several companies in 1995, including a Pepsi-Cola
franchise in Cedar Rapids, Iowa, a Hussmann equipment distributor in Chile, the
remaining 50 percent interest in a refrigeration manufacturer and distributor in
the United Kingdom, and 10 Midas muffler shops from a previous franchisee, at a
total cost of $60.5 million. All such acquisitions were accounted for as
purchases, and the operating results include such acquisitions from the dates of
purchase. The effects of these acquisitions, had they been made as of January 1,
1995, would not have been significant to operating results.
In 1995, the Company issued 126,700 shares of its common stock with a value
of $2.7 million in connection with the acquisition of a group of Midas shops
from the former franchisee. In February, 1996, the Company issued an additional
11,614 shares of its common stock in connection with this acquisition.
<PAGE>
11. ENVIRONMENTAL AND OTHER CONTINGENCIES
The Company is subject to certain indemnification obligations under
agreements with previously sold subsidiaries for 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 such costs is subject to various factors,
including possible insurance recoveries and the allocation of liabilities among
many other potentially responsible and financially viable parties.
Using the latest evaluations from outside advisors and consultants, the
Company believes that its potential future environmental liabilities, before
possible insurance recoveries, range from $25 million to $35 million or more. At
December 31, 1996, the Company had $30.2 million accrued to cover these
potential liabilities. During 1996, the Company recovered $4.9 million from
insurance companies and other responsible parties related to these environmental
liabilities. Such recoveries were credited to the accruals for such liabilities.
These estimated liabilities include expenses for the remediation of
identified sites, payments to third parties for claims and expenses, and the
expenses of on-going evaluation and litigation. The estimates are based upon
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 be filed against the Company in the future.
The Company also has other contingent liabilities from various pending
claims and litigation on a number of matters, for which the ultimate liability
for each claim, if any, cannot be determined. In the opinion of management, and
based upon information currently available, the ultimate resolution of these
claims and litigation, including potential environmental exposures, and
considering amounts already accrued, will not have a material effect on the
Company's financial condition or the results of operations. While additional
claims and liabilities may develop and may result in additional charges to
income, principally through discontinued operations, the Company does not
believe that such charges, if any, would have a material effect upon the
Company's financial condition or the results of operations.
<PAGE>
12. SEGMENT REPORTING
The Company is engaged in three distinct businesses: Pepsi-Cola soft drinks
and other beverages; Midas automotive services; and Hussmann refrigeration
systems and equipment. Selected financial information related to these business
segments is shown below:
<TABLE>
<CAPTION>
Depreciation and
Sales and revenues Operating income Identifiable assets amortization Capital investments
-------------------------- -------------------- -------------------------- ------------------- ---------------------
(in millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- ------ ------ ------ -------- -------- -------- ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pepsi General $1,501.4 $1,448.7 $1,256.1 $212.3 $197.7 $185.5 $1,077.4 $1,034.9 $ 892.8 $ 66.5 $ 60.0 $53.7 $ 86.9 $110.4 $ 66.0
Midas 604.2 576.1 543.2 78.0 82.5 75.2 484.6 440.8 406.9 20.3 18.1 16.4 30.7 34.3 28.7
Hussmann 1,005.7 921.7 859.5 93.8 78.7 82.5 611.4 540.1 492.0 20.2 19.6 17.3 33.5 29.3 32.7
Eliminations
and other -- -- -- -- -- -- 148.9 171.4 167.2 8.8 10.6 10.6 0.3 0.8 --
-------- -------- -------- ------ ------ ------ -------- -------- ------- ------ ------ ----- ------ ------ ------
Total before
corporate
administrative
expenses $3,111.3 $2,946.5 $2,658.8 384.1 358.9 343.2 2,322.3 2,187.2 1,958.9 $115.8 $108.3 $98.0 $151.4 $174.8 $127.4
======== ======== ======== ====== ====== ===== ====== ====== ======
Corporate
administrative
expenses (17.5) (16.6) (16.4)
------ ------ ------
Total operating income 366.6 342.3 326.8
Interest expense, net (65.3) (68.2) (64.7)
Other expense, net/
corporate assets (25.6) (14.4) (49.4) 87.1 176.1 176.5
------ ------ ------ -------- -------- --------
Pretax income/
total assets $275.7 $259.7 $212.7 $2,409.4 $2,363.3 $2,135.4
====== ====== ====== ======== ======== ========
</TABLE>
Selected geographical information is presented below:
<TABLE>
<CAPTION>
Sales and revenues Operating income Identifiable assets
------------------------------ ------------------------------ -------------------------------
(in millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $2,623.5 $2,489.8 $2,236.3 $ 368.0 $ 345.4 $ 312.2 $ 1,831.9 $ 1,783.3 $ 1,629.3
Foreign 556.0 517.2 472.2 16.1 13.5 31.0 490.4 403.9 329.6
Eliminations (68.2) (60.5) (49.7) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Total before corporate
expenses/assets $3,111.3 $2,946.5 $2,658.8 $ 384.1 $ 358.9 $ 343.2 $ 2,322.3 $ 2,187.2 $ 1,958.9
======== ======== ======== ======== ======== ======== ========= ========= =========
</TABLE>
<PAGE>
Equity in net income (loss) and net assets of the Company's foreign
operations amounted to $(1.5) million and $222.6 million, respectively, in 1996,
$5.2 million and $215.5 million in 1995, and $16.7 million and $180.8 million in
1994.
Operating income is exclusive of net interest expense, corporate
administrative expenses, equity in net income (loss) of affiliates, other
miscellaneous income and expense items, and income taxes. Other expense, net in
1996 includes an $8.7 million charge, principally related to asset write-downs
at its joint venture soft drink operations in Poland. Other expense, net in 1994
includes a $24.2 million unrealized loss on investment in Northfield
Laboratories Inc. ("Northfield"). Foreign currency gains or losses were not
significant. Sales between operating segments and between geographical areas
were not significant. Export sales, sales to any single customer and sales to
domestic or foreign governments were each less than ten percent of consolidated
sales and revenues.
Corporate assets are principally cash or cash equivalents, investments, and
miscellaneous other assets.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Full
(in millions, except per share data) Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996:
- -----
Sales $ 657.9 $ 772.2 $ 856.7 $ 824.5 $ 3,111.3
Gross profit 229.3 282.5 308.0 283.5 1,103.3
Net income 16.0 41.7 52.9 28.8 139.4
Net income per share $ 0.15 $ 0.39 $ 0.50 $ 0.27 $ 1.31
1995:
- -----
Sales $ 594.4 $ 734.7 $ 827.1 $ 790.3 $ 2,946.5
Gross profit 211.3 263.7 292.0 258.2 1,025.2
Net income 14.0 38.0 47.5 34.0 133.5
Net income per share $ 0.13 $ 0.36 $ 0.45 $ 0.32 $ 1.26
</TABLE>
In the fourth quarter of 1996, the Company recorded an after-tax charge of
$8.7 million ($7.0 million after minority interest) in "other expense, net",
principally related to asset write-downs at its joint venture soft drink
operations in Poland. The charge reduced net income per common share by $0.07 a
share for the fourth quarter and year ended December 31, 1996.
<PAGE>
Whitman Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31 1996 1995 1994 1993 1992 1991
(dollars in millions except per share) ---------- --------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales and revenues:
Pepsi General $ 1,501.4 $ 1,448.7 $ 1,256.1 $ 1,179.6 $ 1,111.2 $ 1,121.9
Midas 604.2 576.1 543.2 503.6 485.6 476.0
Hussmann 1,005.7 921.7 859.5 846.5 791.2 795.4
---------- --------- ---------- ---------- ---------- ----------
Total $ 3,111.3 $ 2,946.5 $ 2,658.8 $ 2,529.7 $ 2,388.0 $ 2,393.3
========== ========= ========== ========== ========== ==========
Operating income:
Pepsi General $ 212.3 $ 197.7 $ 185.5 $ 170.5 $ 139.0 $ 144.7
Midas 78.0 82.5 75.2 67.1 73.1 76.4
Hussmann 93.8 78.7 82.5 83.6 76.8 66.1
Corporate administrative expenses (17.5) (16.6) (16.4) (15.9) (14.5) (15.4)
---------- --------- ---------- ---------- ---------- ----------
Total operating income 366.6 342.3 326.8 305.3 274.4 271.8
Interest expense, net (65.3) (68.2) (64.7) (83.4) (88.7) (114.2)
Other income (expense), net (25.6)(A) (14.4) (49.4)(B) (9.7) (15.1) 4.1
---------- --------- ---------- ---------- ---------- ----------
Income before income taxes 275.7 259.7 212.7 212.2 170.6 161.7
Income tax provisions 117.2 107.4 88.1 90.7 68.5 70.3
Minority interest 19.1 18.8 18.2 15.1 10.0 11.0
---------- --------- ---------- ---------- ---------- ----------
Income from continuing operations 139.4 133.5 106.4 106.4 92.1 80.4
Income (loss) from discontinued operations -- -- (3.2) -- (32.3) 17.2
Extraordinary loss on early debt retirement -- -- -- (4.2) -- --
Cumulative effect of accounting change -- -- -- (24.0) -- --
---------- --------- ---------- ---------- ---------- ----------
Net income $ 139.4 $ 133.5 $ 103.2 $ 78.2 $ 59.8 $ 97.6
========== ========= ========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE:
From continuing operations $ 1.31 $ 1.26 $ 1.00 $ 0.99 $ 0.86 $ 0.76
From discontinued operations -- -- (0.03) -- (0.30) 0.16
Extraordinary loss on early debt retirement -- -- -- (0.04) -- --
Cumulative effect of accounting change -- -- -- (0.22) -- --
---------- --------- ---------- ---------- ---------- ----------
Net income $ 1.31 $ 1.26 $ 0.97 $ 0.73 $ 0.56 $ 0.92
========== ========= ========== ========== ========== ==========
Average shares (in millions) 106.4 106.2 106.2 107.5 107.2 105.9
========== ========= ========== ========== ========== ==========
Cash dividends per common share $ 0.41 $ 0.37 $ 0.33 $ 0.29 $ 0.255 $ 0.445
========== ========= ========== ========== ========== ==========
OTHER STATISTICS:
Total assets $ 2,409.4 $ 2,363.3 $ 2,135.4 $ 2,103.2 $ 2,062.8 $ 2,123.0
Long-term debt $ 837.5 $ 828.2 $ 723.0 $ 749.3 $ 791.8 $ 895.9
Capital investments $ 151.4 $ 174.8 $ 127.4 $ 88.7 $ 79.2 $ 79.2
Depreciation and amortization $ 115.8 $ 108.3 $ 98.0 $ 95.5 $ 93.5 $ 86.6
Number of employees at December 31 17,594 16,841 15,271 14,868 14,374 14,703
</TABLE>
(A) Includes an $8.7 million charge, principally for asset write-downs at the
joint venture soft drink operations in Poland. The charge reduced
minority interest by $1.7 million.
(B) Includes a $24.2 million unrealized loss on investment in Northfield.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
----------------------
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1996
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
(3)a# Certificate of Incorporation as Restated April 30, 1987, and
subsequently amended through June 24, 1992.
(3)b+ By-Laws, as amended September 20, 1996.
(4)# Indenture dated as of January 15, 1993, between Whitman Corporation
and The First National Bank of Chicago, Trustee. The Registrant
will furnish to the Securities and Exchange Commission, upon
request, copies of the forms of the debt securities issued from
time to time pursuant to the Indenture dated as of January 15,
1993.
(10)a# **1982 Stock Option, Restricted Stock Award and Performance Award
Plan (as amended through June 16,
1989).
(10)b# **Amendment No. 2 to 1982 Stock Option, Restricted Stock Award and
Performance Award Plan made as of September 1, 1992.
(10)c# **Form of Nonqualified Stock Option Agreement.
(10)d# **Amendment to 1982 Stock Option, Stock Award and Performance Award
Plan made as of February 19, 1993.
(10)e@ **Form of Change in Control Agreement dated November 17, 1995.
(10)g# **Management Incentive Compensation Plan.
(10)h# **Long Term Performance Compensation Program.
(10)i& **Whitman Corporation Executive Retirement Plan, as Amended and
Restated Effective January 1, 1995.
(10)j& **Hussmann Corporation Executive Retirement Plan, as Amended and
Restated Effective January 1, 1995.
(10)k& **Midas International Corporation Executive Retirement Plan, as
Amended and Restated Effective January 1, 1995.
(10)l& **Pepsi-Cola General Bottlers, Inc. Executive Retirement Plan, as
Amended and Restated Effective January 1, 1995.
(10)m# **Deferred Compensation Plan for Directors, as Amended November 18,
1988.
(10)n+ **Amendment to Stock Incentive Plan dated September 20, 1996.
(10)o* **Form of Restricted Stock Award Agreement.
(12) Statement of Calculation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
Exhibit Reference Explanations
** Exhibit constitutes a management contract or compensatory plan, contract or
arrangement described under Item 601(b) (10) (iii) (A) of Regulation S-K.
# Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 under the indicated Exhibit number.
* Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 under the indicated Exhibit number.
& Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 under the indicated Exhibit number.
@ Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 under the indicated Exhibit number.
+ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 under the indicated Exhibit
number.
EXHIBIT 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION
OF RATIO OF EARNINGS TO FIXED CHARGES
(in Millions, Except Ratios)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from Continuing Operations before Taxes $ 275.7 $ 259.7 $ 212.7 $ 212.2 $ 170.6
Fixed Charges, Excluding Capitalized Interest 84.7 86.7 82.2 105.9 106.9
--------- --------- --------- --------- ---------
Earnings as Adjusted $ 360.4 $ 346.4 $ 294.9 $ 318.1 $ 277.5
========= ========= ========= ========= =========
Fixed Charges:
Interest Expense $ 72.2 $ 74.6 $ 71.1 $ 96.2 $ 97.7
Portion of Rents Representative of Interest Factor 12.5 12.1 11.1 9.7 9.2
--------- --------- --------- --------- ---------
Fixed Charges, Excluding Capitalized Interest 84.7 86.7 82.2 105.9 106.9
Capitalized Interest -- 0.2 0.2 0.2 0.2
--------- --------- --------- --------- ---------
Total Fixed Charges $ 84.7 $ 86.9 $ 82.4 $ 106.1 $ 107.1
========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 4.3x 4.0x 3.6x 3.0x 2.6x
========= ========= ========= ========= =========
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
As of March 1, 1997
Percentage Of
Voting Stock
Owned Or
Controlled
Place of By The
Name Incorporation Registrant
Whitman Corporation (Registrant).........................Delaware
IC Equities, Inc..................................... Delaware 100%
Whitman Leasing, Inc..................................Delaware 100
Whitman Insurance Co., Ltd............................Bermuda 100
Illinois Center Corporation...........................Delaware 100
Mid-America Improvement Corporation...................Illinois 100
South Properties, Inc.................................Illinois 100
Environ of Inverrary, Inc.......................... Florida 100
S&T of Mississippi, Inc.............................Mississippi 100
Midas International Corporation...................... Delaware 100
Cosmic Enterprises, Inc.............................Delaware 100
Cosmic Stores, Inc................................New York 100
Cosmic of Huntington Beach, Inc.....................California 100
Cosmic of Costa Mesa, Inc...........................California 100
Cosmic of Orange, Inc...............................California 100
Midas Euro, Inc.....................................Delaware 100
Midas FSC, Inc......................................Barbados 100
Midas Realty Corporation............................Delaware 100
Midas Properties, Inc.............................New York 100
Muffler Corporation of America......................Illinois 100
Midas Mufflers (Vic.) Pty. Ltd..................... Australia 100
Midas Australia Pty. Ltd........................ Australia 100
Midas Illinois, Inc.................................Illinois 100
Midas Europe S.A.M..................................Monaco 100
Midas Italy, Inc................................... Delaware 100
Midas Italia S.R.L................................Italy 100
Midas Spain, Inc....................................Delaware 100
Pepsi-Cola General Bottlers, Inc......................Delaware 80
PCGB, Inc...........................................Illinois 80
Genadco Advertising Agency, Inc.....................Illinois 80
General Bottlers, Inc...............................Delaware 80
Iowa Vending, Inc...................................Delaware 80
Kolmar Products Corporation.........................Wisconsin 80
Pepsi-Cola General Bottlers of Indiana, Inc.........Delaware 80
Pepsi-Cola General Bottlers of Ohio, Inc............Delaware 80
Pepsi-Cola General Bottlers of Virginia, Inc........Virginia 80
Pepsi-Cola General Bottlers of Princeton, Inc.......West Virginia 80
Pepsi-Cola Bottling Co. of Bloomington, Inc.........Delaware 80
Pepsi-Cola Bottling Co. of Wisconsin, Inc.......... Wisconsin 80
Marquette Bottling Works, Incorporated..............Michigan 80
Northern Michigan Vending, Inc......................Michigan 80
Pepsi-Cola General Bottlers of Iowa, Inc............Iowa 80
GB International, Inc...............................Delaware 80
General Bottlers Sp.z o.o...........................Poland 80
<PAGE>
Neva Holdings LLC...................................Delaware 80
GB Russia LLC.....................................Delaware 80
O.O.O. Pepsi-Cola General Bottlers..............Russia 80
Hussmann Corporation..................................Missouri 100
Krack Corporation.................................. Illinois 100
Hussmann International Sales Corporation............Barbados 100
Hussmann Tempcool Holdings PTE Limited..............Singapore 50
Luoyang Hussmann Refrigeration Co., Ltd.............China 55
Refrigeracion Frio Lux S.A.I........................Chile 75
Whitman International, Inc.......................... Delaware 100
Whitman Netherlands B.V............................. Netherlands 100
Hussmann Mexico S.A. de C.V.........................Mexico 100
American Refrigeration Products S.A. de C.V.......Mexico 100
Industrias Frigorificas S.A. de C.V...............Mexico 100
Hussmann Immobiliaria, S.A. de C.V................Mexico 100
Finanza I B.V.......................................Netherlands 100
Fast-Frio do Brasil Ltda......................... Brazil 70
Hussmann Canada Holdings, Ltd.....................Canada 100
Hussmann Canada, Inc............................Canada 100
Hussmann Holdings, Ltd............................Great Britain 100
Hussmann (Europe) Ltd...........................Great Britain 100
Capital Metalworks Limited.................... Great Britain 100
Hussmann Refrigeration (Hungary) KFT............Hungary 60
Finanza II B.V......................................Netherlands 100
Midas France S.A................................. France 100
Midas S.A.........................................Belgium 100
Midas Silenciador, S.A............................Spain 100
Carex Uitlaatcenter N.V...........................Belgium 100
Midas Canada Holdings, Ltd........................Canada 100
Midas Canada, Inc...............................Canada 100
Midas Realty Corp. of Canada, Inc.............Canada 100
Midas Autoservice GmbH............................Austria 100
Midas Schweiz AG................................. Switzerland 100
The names of certain subsidiaries are omitted because such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Whitman Corporation:
We consent to incorporation by reference in Registration Statements Nos. 33-
58209 and 333-16355 on Forms S-3, Registration Statement No. 33-62113 on Form
S-4, and Registration Statement Nos. 33-65006, 33-28238 and 33-53427 on Forms
S-8 of Whitman Corporation of our report dated January 13, 1997, relating to the
consolidated balance sheets of Whitman Corporation and subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in this annual report on
Form 10-K.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Chicago, Illinois
March 20, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Whitman Corporation, a Delaware corporation (the "Company"), hereby
constitutes and appoints BRUCE S. CHELBERG, THOMAS L. BINDLEY and FRANK T.
WESTOVER, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, and any and all
amendments thereto, and to file the same, with all exhibits and schedules
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 20th day of March, 1997.
Date Date
------- -------
/s/ Bruce S. Chelberg 3/20/97 /s/ Pierre S. DuPont 3/20/97
- ------------------------ --------------------------
Bruce S. Chelberg Pierre S. DuPont
/s/ Thomas L. Bindley 3/20/97 /s/ Archie R. Dykes 3/20/97
- ------------------------ --------------------------
Thomas L. Bindley Archie R. Dykes
/s/ Frank T. Westover 3/20/97 /s/ Charles W. Gaillard 3/20/97
- ------------------------ --------------------------
Frank T. Westover Charles W. Gaillard
/s/ Herbert M. Baum 3/20/97 /s/ Jarobin Gilbert, Jr. 3/20/97
- ------------------------ --------------------------
Herbert M. Baum Jarobin Gilbert, Jr.
/s/ Richard G. Cline 3/20/97 /s/ Victoria B. Jackson 3/20/97
- ------------------------ --------------------------
Richard G. Cline Victoria B. Jackson
/s/ James W. Cozad 3/20/97 /s/ Donald P. Jacobs 3/20/97
- ------------------------ --------------------------
James W. Cozad Donald P. Jacobs
/s/ Charles S. Locke 3/20/97
- ------------------------
Charles S. Locke
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000049573
<NAME> WHITMAN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 76,800
<SECURITIES> 0
<RECEIVABLES> 396,900<F1>
<ALLOWANCES> 7,300
<INVENTORY> 307,300
<CURRENT-ASSETS> 855,000
<PP&E> 1,445,100
<DEPRECIATION> 710,800
<TOTAL-ASSETS> 2,409,400
<CURRENT-LIABILITIES> 526,000
<BONDS> 837,500
0
0
<COMMON> 456,300
<OTHER-SE> 185,900
<TOTAL-LIABILITY-AND-EQUITY> 2,409,400
<SALES> 3,111,300
<TOTAL-REVENUES> 3,111,300
<CGS> 2,008,000
<TOTAL-COSTS> 2,744,700<F2>
<OTHER-EXPENSES> 25,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,300<F3>
<INCOME-PRETAX> 275,700
<INCOME-TAX> 117,200
<INCOME-CONTINUING> 139,400<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,400
<EPS-PRIMARY> $1.31
<EPS-DILUTED> $1.31
<FN>
<F1>Net of allowance for doubtful accounts of $7,300.
<F2>Includes Selling, General and Administrative Expenses, Amortization
Expense and Cost of Goods Sold.
<F3>Interest expense is offset by $6,900 of interest income, therefore
gross interest expense equals $72,200.
<F4>Income from continuing operations is reported after minority interest
of $19,100.
</FN>
</TABLE>
