SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
/ / 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
- ------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3501 Algonquin Road, Rolling Meadows, Illinois 60008
- ---------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 818-5000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /x/ NO / /
As of October 31, 1997, the Registrant had 101,523,259 outstanding shares
(excluding treasury shares) of common stock, without par value, the Registrant's
only class of common stock.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Sales and Revenues $ 898.4 $ 856.7 $ 2,376.1 $ 2,286.8
Cost of Goods Sold 578.2 548.7 1,535.3 1,467.0
---------- ---------- ---------- ----------
Gross Profit 320.2 308.0 840.8 819.8
Selling, General and Administrative Expenses 193.1 179.7 562.3 526.6
Amortization Expense 5.1 5.0 15.4 15.0
Special Charges 107.7 -- 107.7 --
---------- ---------- ---------- ----------
Operating Income 14.3 123.3 155.4 278.2
Interest Expense (18.3) (17.5) (54.7) (53.2)
Interest Income 1.5 1.5 4.3 4.6
Other Expense, Net (4.8) (4.5) (15.4) (13.2)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes (7.3) 102.8 89.6 216.4
Income Tax Provisions 17.3 42.6 57.5 89.7
---------- ---------- ---------- ----------
Income (Loss) Before Minority Interests (24.6) 60.2 32.1 126.7
Minority Interests 6.3 7.3 13.8 16.1
---------- ---------- ---------- ----------
Income (Loss) from Continuing Operations (30.9) 52.9 18.3 110.6
Loss from Discontinued Operations (2.9) -- (2.9) --
---------- ---------- ---------- ----------
Net Income (Loss) $ (33.8) $ 52.9 $ 15.4 $ 110.6
========== ========== ========== ==========
Average Number of Common Shares Outstanding 103.2 106.1 103.3 106.8
========== ========== ========== ==========
Net Income (Loss) per Common Share:
Continuing Operations (0.30) 0.50 0.18 1.04
Discontinued Operations (0.03) -- (0.03) --
---------- ---------- ---------- ----------
Net Income (Loss) $ (0.33) $ 0.50 $ 0.15 $ 1.04
========== ========== ========== ==========
Cash Dividends per Common Share $ 0.115 $ 0.105 $ 0.335 $ 0.305
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(in millions)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 79.3 $ 76.8
Receivables, Net 469.4 396.9
Inventories, Net 335.1 307.3
Other Current Assets 78.8 74.0
------------ ------------
Total Current Assets 962.6 855.0
------------ ------------
Investments 173.7 181.3
Property (at Cost) 1,498.0 1,445.1
Accumulated Depreciation and Amortization (747.0) (710.8)
------------ ------------
Net Property 751.0 734.3
------------ ------------
Intangible Assets, Net 497.6 553.8
Other Assets 108.6 85.0
------------ ------------
Total Assets $ 2,493.5 $ 2,409.4
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-Term Debt, Including Current Maturities of Long-Term Debt $ 143.8 $ 94.3
Accounts and Dividends Payable 293.9 266.5
Other Current Liabilities 227.1 165.2
------------ ------------
Total Current Liabilities 664.8 526.0
------------ ------------
Long-Term Debt 797.8 837.5
Deferred Income Taxes 82.9 47.1
Other Liabilities 126.6 118.1
Minority Interests 249.2 238.5
Shareholders' Equity:
Common Stock (Without par value, 250.0 million shares authorized;
111.4 million shares issued at September 30, 1997 and 110.6 million
shares issued at December 31, 1996) 470.7 456.3
Retained Income 382.1 402.0
Cumulative Translation Adjustments (78.0) (57.8)
Unrealized Investment Gain 2.5 1.8
Treasury Stock (9.9 million shares in 1997 and
8.0 million shares in 1996) (205.1) (160.1)
------------ ------------
Total Shareholders' Equity 572.2 642.2
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,493.5 $ 2,409.4
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1997 1996
----------- -----------
(in millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from Continuing Operations $ 18.3 $ 110.6
Adjustments to Reconcile to Net Cash Provided by Operating Activities:
Depreciation and Amortization 88.6 88.1
Special Charges, Net of Tax, Not Affecting Cash 83.1 --
Other 15.8 12.2
Changes in Assets and Liabilities, Exclusive of Acquisitions:
Increase in Receivables (35.2) (49.2)
Increase in Inventories (22.9) (47.9)
Increase in Payables 21.5 52.0
Net Change in Other Assets and Liabilities 33.1 (5.3)
----------- -----------
Net Cash Provided by Continuing Operations 202.3 160.5
Net Cash Used in Discontinued Operations (8.0) (10.8)
----------- -----------
Net Cash Provided by Operating Activities 194.3 149.7
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Investments, Net (97.5) (95.5)
Acquisitions and Investments in Joint Ventures (44.7) (28.8)
Purchases of Investments (35.6) (88.0)
Proceeds from Sales of Investments 48.4 165.1
----------- -----------
Net Cash Used in Investing Activities (129.4) (47.2)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt 82.2 127.4
Repayment of Long-Term Debt (70.7) (72.5)
Net Borrowings from Bank Lines of Credit and Commercial Paper -- 29.0
Net Change in Notes Payable (2.0) 2.6
Common Dividends (34.1) (32.1)
Treasury Stock Purchases (43.7) (64.9)
Issuance of Common Stock 7.7 13.7
----------- -----------
Net Cash (Used in) Provided by Financing Activities (60.6) 3.2
----------- -----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1.8) 0.2
----------- -----------
Change in Cash and Cash Equivalents 2.5 105.9
Cash and Cash Equivalents at January 1 76.8 53.3
----------- -----------
Cash and Cash Equivalents at September 30 $ 79.3 $ 159.2
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Registrant believes that
the disclosures made are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996. In the opinion of management, the information
furnished herein reflects all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair statement of results for the
interim periods presented.
2. This report contains forward-looking statements which reflect management's
expectations based on currently available information. Actual results are
subject to future events and uncertainties, including without limitation,
weather, economic and market conditions, exchange rates, availability of
raw materials and competitive activities, which could cause actual results
to differ significantly from any forward-looking statements made by the
Company.
3. In June, 1997, the Company announced that its Board of Directors had
approved a plan to spin off Hussmann Corporation ("Hussmann") and Midas
International Corporation ("Midas") to Whitman shareholders. This plan is
subject to receipt of a ruling (the "ruling") by the Internal Revenue
Service ("IRS") that the transaction would be non-taxable to the Company
and its shareholders, as well as market conditions at the time of the
spin-off. The Company has decided to continue to report Hussmann and Midas
as part of continuing operations pending receipt of the ruling and final
action by the Board to spin off these companies.
4. In the third quarter of 1997, the Company recorded special charges of
$107.7 million. Of the total, $67.6 million was recorded by Midas,
principally related to its decision to franchise or close substantially all
company-operated stores in the U.S. (119 stores are expected to be
franchised and 16 stores are expected to be closed), to enhance some
franchise programs and to reflect the impairment of certain assets. At
Hussmann, charges totaled $30.7 million, primarily related to the write-off
of intangibles at its U.K. operations. Pepsi-Cola General Bottlers, Inc.
("Pepsi General") incurred charges of $3.4 million, principally for asset
write-downs in its foreign operations. Additionally, charges of $6.0
million were recorded at Whitman, the majority of which related to expenses
associated with the proposed spin-offs. The after-tax impact of special
charges recorded during the current quarter was $84.1 million ($83.5
million after minority interest).
The Company expects additional special charges of approximately $60 to $65
million in the fourth quarter. Hussmann anticipates recording additional
charges of approximately $25 million for the restructuring of its U.K.
operations, as well as a reorganization of certain manufacturing operations
in the U.S. The additional charges at Pepsi General, currently estimated to
be approximately $11 million, will principally relate to the partial
consolidation of its domestic divisions, including reductions in staffing
levels. The balance of the charges expected in the fourth quarter primarily
represents expenses related to staff reductions at Whitman.
<PAGE>
The following table summarizes the Registrant's special charges recorded
during the quarter ended September 30, 1997 (unaudited and in millions):
<TABLE>
<CAPTION>
Pepsi Whitman
General Midas Hussmann Corporate Total
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Special Charges:
Franchise or Close
Company-Operated Stores $ -- $ 35.5 (a) $ -- $ -- $ 35.5
U.K. Intangible Write-Off -- -- 26.0 -- 26.0
Asset Write-Downs 3.4 12.5 -- 0.7 16.6
Employee Related Costs -- 4.4 0.7 -- 5.1 (b)
One-Time Franchise
Enhancement Programs -- 12.2 -- -- 12.2
Other -- 3.0 4.0 5.3 12.3
-------- -------- -------- -------- --------
Total $ 3.4 $ 67.6 $ 30.7 $ 6.0 $ 107.7
======== ======== ======== ======== ========
</TABLE>
(a) Includes $4.7 million of termination benefits for 197 employees related to
the decision to franchise or close substantially all company-operated
stores. It is expected that substantially all staff reductions will be
completed within one year, but no significant cash expenditures had been
made as of the end of the third quarter of 1997.
(b) Termination benefits for 78 employees resulting from staff reductions.
Substantially all staff reductions are expected to be completed by early
1998, but no cash expenditures had been made as of the end of the third
quarter of 1997.
5. In the third quarter of 1997, the Company incurred a $2.9 million after-tax
loss from discontinued operations arising from the settlement of income tax
audits with the IRS for the tax years 1988 through 1991. The issues settled
primarily related to previously discontinued operations, and as a result of
the settlement, the Company has adjusted its deferred tax balances and
written-off certain deferred tax assets related to previously discontinued
operations resulting in the loss during the current quarter. The after-tax
effect of the tax settlement on continuing operations was approximately $1
million, which has been reflected in the estimated effective tax rate for
1997. Included in the balance sheet at September 30, 1997 was a receivable
of $42.8 million for the taxes to be refunded and estimated interest due,
which were subsequently received during the month of October.
6. Net cash provided by operating activities reflected cash payments and
receipts for interest and income taxes as follows:
Nine Months Ended
September 30,
-----------------------
1997 1996
------ ------
(in millions)
Interest Paid $ 62.8 $ 59.4
Interest Received (4.5) (4.4)
Income Taxes Paid 52.1 72.6
Income Tax Refunds (0.6) (7.1)
7. As of September 30, 1997, the components of inventory were approximately:
raw materials and supplies -- 31 percent; work in process -- 20 percent;
and finished goods -- 49 percent.
8. The Company has determined that certain transactions related to periods
prior to 1992 resulted in a misclassification between components of
shareholders' equity. The financial statements have been restated to
reflect this correction.
9. In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", effective for fiscal periods ending after December 15, 1997. Its
adoption is not expected to have a material effect on the Registrant's
reported earnings per share.
10. In June, 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). Statement No. 130 establishes standards for
disclosing comprehensive income and its components in a full set of general
financial statements. Statement No. 130 is effective for fiscal periods
beginning after December 15, 1997. The Registrant will adopt Statement No.
130 in 1998, which will result in the inclusion in the statement of
comprehensive income of (i) periodic adjustments arising from the
translation of non-U.S. functional currency financial statements into U.S.
dollars, and (ii) net changes in unrealized gains or losses on the
investment in Northfield Laboratories Inc.
11. In June, 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement No. 131"). Statement No.
131 establishes standards for disclosing information related to operating
segments by superseding SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", and amending SFAS No. 94, "Consolidation of All
Majority-Owned Subsidiaries", to remove the special disclosure requirements
for previously unconsolidated subsidiaries. The Registrant believes the
disclosures in the financial statements included in its most recent Form
10-K meet the requirements of Statement No. 131 relating to reportable
segments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Registrant had cash and cash equivalents of
$79.3 million, compared with $76.8 million at December 31, 1996. The increase in
cash during the first nine months of 1997 principally resulted from net cash
provided by operating activities, the issuance of long-term debt and net
proceeds from the sale of investments, partially offset by the repayment of
debt, capital expenditures, acquisitions and investments in joint ventures,
treasury stock purchases and common dividends.
Cash flow from continuing operations amounted to $202.3 million for the
first nine months of 1997, compared with $160.5 million in the first nine months
of 1996. Income from continuing operations for the first nine months of 1997,
excluding the impact of special charges, was $101.8 million, down $8.8 million
from the same period in 1996. As discussed in Note 5 to the condensed
consolidated financial statements, the Registrant recorded a receivable of $42.8
million, representing a tax settlement for the years 1988 through 1991, of which
$10.2 million related to continuing operations. In addition, the Registrant
adjusted its deferred tax balances in connection with the tax settlement.
Excluding the impact of the tax settlement, cash used for primary working
capital (defined as receivables and inventories, less payables) was $26.4
million, $18.7 million less than cash used during the comparable period in 1996.
The change in other assets and liabilities, excluding the impact of the tax
settlement, provided cash of $22.9 million in the first nine months of 1997, up
$28.2 million from the cash used in the comparable period of 1996 of $5.3
million. Excluding the improved cash flow resulting from reduced estimated tax
payments, there were no individually significant items accounting for the
favorable change.
Cash used in investing activities totaled $129.4 million in the first nine
months of 1997, compared with $47.2 million for the same period of 1996. Capital
investments, net of proceeds from asset sales, totaled $97.5 million during the
first nine months of 1997, up $2.0 million from the same period of 1996. Cash
used for acquisitions and investments in joint ventures of $44.7 million in the
first nine months of 1997 primarily included Pepsi General's acquisition of the
St. Petersburg, Russia bottling operations, Hussmann's acquisition of a seventy
percent interest in a refrigeration company in Brazil, and Midas' acquisition of
eleven franchise shops in Utah. Pepsi General invested an additional $3.8
million during the first nine months of 1997 in its manufacturing joint venture
in Poland, compared with $28.8 million during the same period of 1996. Purchases
and sales of investments principally related to the Registrant'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 represent reinvestment of assets as the investments mature. During
the first nine months of 1997, the Registrant's insurance subsidiary liquidated
$10 million of its investment portfolio and loaned the proceeds to the
Registrant. During the first nine months of 1996, a similar action was taken
which resulted in the liquidation of $70 million of its investment portfolio and
a loan of the proceeds to the Registrant. Proceeds from these loans were used
for general corporate purposes and to reduce external indebtedness,
respectively.
In the first nine months of 1997, the Registrant had net borrowings of
long-term debt, bank lines, commercial paper and notes payable of $9.5 million.
The Registrant's total debt levels increased to $941.6 million at September 30,
1997, up from $931.8 million at December 31, 1996. Proceeds of $7.7 million were
received from the issuance of common stock associated with stock options
exercised during the first nine months of 1997.
At September 30, 1997, the Registrant had contractual bank lines of credit
of $300 million and also maintained a $200 million commercial paper program,
which was unchanged from December 31, 1996. There were no borrowings under these
facilities at either September 30, 1997 or December 31, 1996.
<PAGE>
RESULTS OF OPERATIONS
1997 THIRD QUARTER COMPARED WITH 1996 THIRD QUARTER
Sales and revenues increased 4.9 percent to $898.4 million in the third
quarter of 1997, compared with the same period of 1996. Sales and revenue
increases were reported by Pepsi General and Hussmann, while Midas reported a
reduction during the quarter, as summarized below:
Quarter Ended
September 30,
----------------------- %
1997 1996 Change
-------- -------- --------
(in millions)
Pepsi General $ 452.9 $ 426.5 6.2
Midas 161.7 168.7 (4.1)
Hussmann 283.8 261.5 8.5
-------- --------
Total Sales and Revenues $ 898.4 $ 856.7 4.9
======== ========
Pepsi General's revenues increased $26.4 million, including a $21.0 million
increase in international sales. The international sales growth was primarily
attributable to Pepsi General's expansion into the newly acquired territories of
the St. Petersburg area of Russia and the Baltics. Domestic sales increased by
1.3 percent to $417.3 million. Domestic unit case volume increased 3.7 percent
over the third quarter of 1996, led by higher sales to supermarkets. This
increase in case volume was offset by a 2.8 percent decrease in average net
selling price on such volume, compared with the third quarter of 1996,
reflecting very competitive market conditions. Midas' revenues decreased $7.0
million, principally due to continued weak demand in the domestic retail and
wholesale automotive replacement markets. Hussmann's revenues increased $22.3
million, primarily resulting from continued strong U.S. supermarket demand and
sales of $6.8 million generated by the newly-acquired Brazilian operations.
Gross profit improved 4.0 percent to $320.2 million, primarily due to the
increase in sales. Gross profit margins, however, declined to 35.6 percent from
36.0 percent in 1996. The decline was due to lower average net selling prices in
Pepsi General's markets, resulting from the competitive pricing conditions,
partially offset by a reduction in packaging and sweetener costs. Hussmann
reported a slight improvement in its gross profit margin but, due to its larger
contribution to sales and lower margin products relative to Pepsi General and
Midas, contributed to the decline in the consolidated margin. Midas reported an
improvement in its margins resulting from an increase in the number of
company-operated stores.
Selling, general and administrative (S,G&A) expenses increased $13.4
million, or 7.5 percent, resulting from increased sales volume, including higher
distribution and selling costs at Pepsi General, and higher expenses at
Hussmann, due in part to the newly-acquired Brazilian operations and higher
corporate expenses. S,G&A expenses represented 21.5 percent of sales in the
third quarter of 1997, up 0.5 percentage points from the same period last year.
Amortization expense did not change significantly.
<PAGE>
Operating income, before special charges of $107.7 million, decreased $1.3
million, or 1.1 percent, to $122.0 million in the third quarter of 1997, with
increases at Pepsi General and Hussmann, offset by lower earnings at Midas.
Operating income, including the special charges for the Registrant's three major
subsidiaries, as well as corporate administrative expenses, are summarized
below:
Quarter Ended
September 30,
----------------------
1997 1996
-------- --------
(in millions)
Pepsi General $ 67.8 $ 70.2
Midas (43.6) 26.5
Hussmann 0.8 30.4
------- -------
Subsidiary Operating Income 25.0 127.1
Corporate Administrative Expenses (10.7) (3.8)
------- -------
Operating Income $ 14.3 $ 123.3
======= =======
Pepsi General's operating income, excluding special charges of $3.4
million, increased $1.0 million, with international operations earning a small
profit in the quarter, compared with an operating loss of $1.4 million in the
third quarter of 1996. Earnings in the U.S., excluding special charges, were
down slightly in the current quarter to $71.1 million from $71.6 million in the
third quarter of 1996. The decline reflected competitive market conditions, as
well as the higher distribution and selling costs associated with the increase
in volume. Midas' operating income, excluding special charges of $67.6 million,
totaled $24.0 million, down $2.5 million from the comparable period of 1996. The
decline occurred in Midas' U.S. operations, resulting from a combination of
lower royalty revenues and wholesale product sales to Midas dealers, as well as
higher selling, general and administrative expenses. Hussmann's operating
income, excluding special charges of $30.7 million, increased $1.1 million from
the third quarter of last year to $31.5 million. The increase primarily related
to increased sales in the U.S. and Canada, where operating income, before
special charges, was up 7.9 percent, reflecting the strong demand for
supermarket equipment. Additionally, the U.K. operations, excluding special
charges of $29.1 million, reported operating income of $0.5 million in the third
quarter of 1997, compared with a loss of $0.9 million in the comparable period
of 1996. However, Hussmann incurred higher corporate administrative expenses
during the third quarter of 1997, which partially offset the favorable results
in the U.S. and Canada and the U.K. The increase in such expenses included costs
associated with implementation of an enterprise-wide information system.
Corporate administrative expenses, excluding special charges, were $4.7 million
for the third quarter of 1997, with the increase principally reflecting the
timing of corporate expenses, as the level of expenses, excluding special
charges, during the first nine months of 1997 was essentially flat with the
comparable period in 1996.
The special charges recorded during the third quarter are discussed further
in Note 4 to the condensed consolidated financial statements.
Net interest expense increased to $16.8 million in the third quarter of
1997 from $16.0 million in the third quarter of 1996, resulting from higher
average debt levels, as the weighted average interest rates for the comparable
periods remained essentially unchanged.
Other expense, net, increased $0.3 million to $4.8 million in the third
quarter of 1997. The increase was not related to any individually significant
items.
<PAGE>
RESULTS OF OPERATIONS
1997 FIRST NINE MONTHS COMPARED WITH 1996 FIRST NINE MONTHS
Sales and revenues increased 3.9 percent to $2,376.1 million in the first
nine months of 1997, with revenue increases reported by each of the Registrant's
three major subsidiaries, as summarized below:
Nine Months Ended
September 30,
------------------------- %
1997 1996 Change
--------- --------- --------
(in millions)
Pepsi General $ 1,178.9 $ 1,143.7 3.1
Midas 464.0 461.0 0.7
Hussmann 733.2 682.1 7.5
--------- ---------
Total Sales and Revenues $ 2,376.1 $ 2,286.8 3.9
========= =========
Pepsi General's revenues increased $35.2 million, or 3.1 percent, to
$1,178.9 million in the first nine months of 1997, compared with the same period
of 1996. The increase included $27.6 million of revenue from expansion into the
newly-acquired territories in Russia and the Baltics. Domestic sales were
essentially flat compared to the previous year, totaling $1,110.8 million. Case
volume in the U.S. increased 4.1 percent over 1996. However, this increase was
essentially offset by a 3.8 percent reduction in the domestic average net
selling price on such volume. Midas' revenues increased slightly above a year
ago, reflecting, among other factors, 40 weeks in 1997 compared with 39 weeks in
1996. Midas' relatively flat revenues reflected weak retail demand in the
domestic retail market, a change in sales mix away from Midas' core services of
mufflers, brakes, shocks and struts, and a decline in product sales to Midas
dealers. Internationally, Midas' Canadian revenues were up 7.0 percent from the
prior year due to improved demand. European revenues were essentially flat, as
the growth in revenues in local currencies, reflecting an increase in the number
of company-operated stores, was offset by the effects of unfavorable currency
exchange rates. Hussmann's revenues increased $51.1 million, primarily driven by
stronger demand for supermarket equipment in the U.S. and Canada. Latin American
sales reflected $14.9 million of additional revenues from the Brazilian
operations acquired during the first quarter of 1997 and improved demand for
bottle coolers at Hussmann's Mexican operations.
Gross profit improved 2.6 percent to $840.8 million, primarily due to the
increase in sales and revenues. Gross profit margins declined to 35.4 percent in
1997 from 35.8 percent in the comparable period of 1996. The decline reflected
increased product costs in Hussmann's U.S. and Canadian operations, which
Hussmann was unable to offset with sufficient price increases, due in part to
the shift in customer mix to high volume supermarket chains. The competitive
pricing conditions encountered by Pepsi General also contributed to the lower
gross profit margins.
S,G&A expenses increased $35.7 million, or 6.8 percent, with the increase
reflecting, among other factors, higher case volume at Pepsi General, higher
operating expenses at Midas, including costs associated with a brake promotion
program during the first quarter, and increased costs at Hussmann associated
with the newly-acquired Brazilian operations, as well as other inflationary cost
increases. Additionally, the S,G&A expenses at Pepsi General included a $2.7
million charge, recorded during the second quarter of 1997, related to staff
reductions. S,G&A expenses represented 23.7 percent of sales in the first nine
months of 1997, compared with 23.0 percent of sales in the same period last
year. Amortization expense did not change significantly.
<PAGE>
Operating income, excluding special charges of $107.7 million,
decreased $15.1 million, or 5.4 percent, to $263.1 million in the first nine
months of 1997, with reductions at Pepsi General and Midas, partially offset by
improved performance at Hussmann. Operating income for the Registrant's three
major subsidiaries and corporate administrative expenses, including
special charges, are summarized below:
Nine Months Ended
September 30,
-----------------------
1997 1996
-------- --------
(in millions)
Pepsi General $ 152.1 $ 165.5
Midas (9.6) 65.2
Hussmann 31.7 60.2
------- -------
Subsidiary Operating Income 174.2 290.9
Corporate Administrative Expenses (18.8) (12.7)
------- -------
Operating Income $ 155.4 $ 278.2
======= =======
In the first nine months of 1997, Pepsi General's operating earnings,
excluding special charges of $3.4 million, were $155.5 million, $10.0 million
below last year. This decrease was due to continued competitive pricing
pressures in its domestic operations and start-up losses in the newly-acquired
international markets. The competitive pricing pressures resulted in a reduction
in domestic operating earnings, excluding special charges, of $7.7 million, or
4.4 percent, compared with the same period of 1996. Pepsi General's
international operations, excluding special charges, reported operating losses
of $11.5 million compared with $9.1 million a year ago, reflecting start-up
losses in Russia and the Baltics. Midas' operating earnings, excluding special
charges of $67.6 million, were $58.0 million, down $7.2 million the first nine
months of 1996, due to continued weak retail demand, a less favorable product
mix and higher S,G&A costs. Hussmann's operating earnings, excluding special
charges of $30.7 million, were $62.4 million, up $2.2 million compared with the
first nine months of 1996. This improvement was due to strong product demand for
supermarket equipment in the U.S., offset by increased operating losses in the
U.K., reflecting lower volume and manufacturing inefficiencies, and lower
operating earnings in Mexico, due to an unfavorable product mix compared with
the previous year. Corporate administrative expenses, excluding special charges
of $6.0 million, were essentially flat compared with a year ago.
Discussion of the special charges may be found in Note 4 to the condensed
consolidated financial statements.
Net interest expense increased by $1.8 million to $50.4 million in the
first nine months of 1997, resulting from higher average debt levels, with no
significant change in weighted average interest rates.
Other expense, net, increased $2.2 million to $15.4 million in the first
nine months of 1997. The increase was not related to any individually
significant items.
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits.
12. Statement of Calculation of Ratio of Earnings to Fixed Charges.
(b). Reports on Form 8-K.
None filed during the third quarter ended September 30, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITMAN CORPORATION
Date: November 14, 1997 By: /s/ FRANK T. WESTOVER
Frank T. Westover
Senior Vice President and Controller
(As Chief Accounting Officer and Duly
Authorized Officer of Whitman Corporation)
EXHIBIT 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION
OF RATIO OF EARNINGS TO FIXED CHARGES
(in Millions, Except Ratios)
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
---------------------- -------------------------------------------------------------
1997* 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from Continuing
Operations before Taxes $ 89.6 $ 216.4 $ 275.7 $ 259.7 $ 212.7 $ 212.2 $ 170.6
Fixed Charges, Excluding
Capitalized Interest 64.5 63.0 84.7 86.7 82.2 105.9 106.9
-------- -------- -------- -------- -------- -------- --------
Earnings as Adjusted $ 154.1 $ 279.4 $ 360.4 $ 346.4 $ 294.9 $ 318.1 $ 277.5
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest Expense $ 54.7 $ 53.2 $ 72.2 $ 74.6 $ 71.1 $ 96.2 $ 97.7
Portion of Rents Representative
of Interest Factor 9.8 9.8 12.5 12.1 11.1 9.7 9.2
-------- -------- -------- -------- -------- -------- --------
Fixed Charges, Excluding
Capitalized Interest 64.5 63.0 84.7 86.7 82.2 105.9 106.9
Capitalized Interest 0.0 0.0 0.0 0.2 0.2 0.2 0.2
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 64.5 $ 63.0 $ 84.7 $ 86.9 $ 82.4 $ 106.1 $ 107.1
======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 2.4x 4.4x 4.3x 4.0x 3.6x 3.0x 2.6x
======== ======== ======== ======== ======== ======== ========
</TABLE>
* The ratio of earnings to fixed charges based on income from continuing
operations before taxes, excluding special charges of $107.7 million, was
4.1x for the nine months ended September 30, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WHITMAN
CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000049573
<NAME> WHITMAN CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 79,300
<SECURITIES> 0
<RECEIVABLES> 478,300
<ALLOWANCES> 8,900
<INVENTORY> 335,100
<CURRENT-ASSETS> 962,600
<PP&E> 1,498,000
<DEPRECIATION> 747,000
<TOTAL-ASSETS> 2,493,500
<CURRENT-LIABILITIES> 664,800
<BONDS> 797,800
0
0
<COMMON> 470,700
<OTHER-SE> 101,500
<TOTAL-LIABILITY-AND-EQUITY> 2,493,500
<SALES> 2,376,100
<TOTAL-REVENUES> 2,376,100
<CGS> 1,535,300
<TOTAL-COSTS> 2,220,700<F1>
<OTHER-EXPENSES> 15,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,400<F2>
<INCOME-PRETAX> 89,600
<INCOME-TAX> 57,500
<INCOME-CONTINUING> 18,300<F3>
<DISCONTINUED> (2,900)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,400
<EPS-PRIMARY> $0.15
<EPS-DILUTED> $0.15
<FN>
<F1>INCLUDES: COST OF GOODS SOLD, S, G & A EXPENSES, AMORTIZATION EXPENSE
AND SPECIAL CHARGES OF $1,535,300, $562,300, $15,400 AND $107,700,
RESPECTIVELY.
<F2>INTEREST EXPENSE IS OFFSET BY $4,300 OF INTEREST INCOME. THEREFORE, GROSS
INTEREST EXPENSE IS $54,700.
<F3>INCOME FROM CONTINUING OPERATIONS IS REPORTED AFTER MINORITY INTEREST OF
$13,800.
</FN>
</TABLE>
