SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
|_| 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 July 31, 1998, the Registrant had 101,524,199 outstanding shares
(excluding treasury shares) of common stock, without par value, the Registrant's
only class of common stock.
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Comprehensive 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Sales $ 408.9 $ 392.5 $ 760.9 $ 726.0
Cost of goods sold 255.4 243.6 474.3 450.4
----------- ----------- ----------- -----------
Gross profit 153.5 148.9 286.6 275.6
Selling, general and administrative expenses 96.3 100.1 190.2 191.6
Amortization expense 4.0 3.9 7.9 7.8
----------- ----------- ----------- -----------
Operating income 53.2 44.9 88.5 76.2
Interest expense, net (Note 4) (8.5) (10.7) (17.8) (21.2)
Other expense, net (5.2) (5.8) (10.1) (10.4)
----------- ----------- ----------- -----------
Income before income taxes 39.5 28.4 60.6 44.6
Income taxes 17.7 12.7 27.2 20.1
----------- ----------- ----------- -----------
Income from continuing operations
before minority interest 21.8 15.7 33.4 24.5
Minority interest 5.4 4.5 8.9 7.5
----------- ----------- ----------- -----------
Income from continuing operations 16.4 11.2 24.5 17.0
Income (loss) from discontinued operations after
taxes (Note 2) -- 22.5 (0.5) 32.2
Extraordinary loss on early extinguishment of debt
after taxes (Note 3) -- -- (18.3) --
----------- ----------- ----------- -----------
Net income $ 16.4 $ 33.7 $ 5.7 $ 49.2
=========== =========== =========== ===========
Average shares:
Basic EPS - weighted-average common shares 101.4 101.6 101.2 101.9
Incremental effect of stock options 1.8 1.1 1.9 1.1
----------- ----------- ----------- -----------
Diluted EPS - weighted-average common shares 103.2 102.7 103.1 103.0
=========== =========== =========== ===========
Income (Loss) Per Common Share - Basic:
Continuing operations $ 0.16 $ 0.11 $ 0.24 $ 0.17
Discontinued operations -- 0.22 -- 0.31
Extraordinary loss on early extinguishment of debt -- -- (0.18) --
----------- ----------- ----------- -----------
Net income $ 0.16 $ 0.33 $ 0.06 $ 0.48
=========== =========== =========== ===========
Income (Loss) Per Common Share - Diluted:
Continuing operations $ 0.16 $ 0.11 $ 0.24 $ 0.17
Discontinued operations -- 0.22 -- 0.31
Extraordinary loss on early extinguishment of debt -- -- (0.18) --
----------- ----------- ----------- -----------
Net income $ 0.16 $ 0.33 $ 0.06 $ 0.48
=========== =========== =========== ===========
Cash dividends per common share $ 0.05 $ 0.115 $ 0.10 $ 0.22
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C>
Net income $ 16.4 $ 33.7 $ 5.7 $ 49.2
Other comprehensive income (loss):
Foreign currency translation adjustment (Note 10) 0.9 (2.8) 2.9 (13.0)
Unrealized gains (losses) on securities arising
during the period, net of tax expense (benefit)
of $2.6, $(0.4), $3.0, and $(0.2), respectively 4.6 (0.8) 5.5 (0.4)
---------- ---------- ---------- ----------
Other comprehensive income (loss) 5.5 (3.6) 8.4 (13.4)
---------- ---------- ---------- ----------
Comprehensive income $ 21.9 $ 30.1 $ 14.1 $ 35.8
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(in millions)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 159.2 $ 52.4
Receivables 168.6 131.7
Inventories (Note 6) 79.1 69.9
Other current assets 42.9 36.3
Net current assets of companies held for disposition -- 270.5
------------ ------------
Total current assets 449.8 560.8
------------ ------------
Investments 165.4 157.0
Property (at cost) 917.7 878.2
Accumulated depreciation and amortization (485.2) (471.6)
------------ -----------
Net property 432.5 406.6
------------ ------------
Goodwill, net 454.7 462.6
Other assets 48.8 49.5
Net non-current assets of companies held for disposition -- 393.2
------------ ------------
Total assets $ 1,551.2 $ 2,029.7
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt $ -- $ 282.5
Accounts and dividends payable 144.7 97.8
Other current liabilities 97.1 109.7
------------ ------------
Total current liabilities 241.8 490.0
------------ ------------
Long-term debt 608.9 604.7
Deferred income taxes 87.7 75.4
Other liabilities 79.9 98.4
Minority interest 226.3 221.5
Shareholders' equity:
Common stock (without par value, 250.0 million shares authorized; 113.3
million shares issued at June 30, 1998 and 111.7 million
shares issued at December 31, 1997) 493.4 478.2
Retained income 66.0 363.4
Accumulated other comprehensive income:
Cumulative translation adjustment (Note 10) (11.7) (78.8)
Unrealized investment gain 5.7 0.2
------------ -------------
Accumulated other comprehensive income (6.0) (78.6)
------------ ------------
Treasury stock (11.8 million shares at June 30, 1998 and 10.6 million
shares at December 31, 1997) (246.8) (223.3)
------------ ------------
Total shareholders' equity 306.6 539.7
------------ ------------
Total liabilities and shareholders' equity $ 1,551.2 $ 2,029.7
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1998 1997
---------- ----------
(in millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 24.5 $ 17.0
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 38.6 36.4
Cash outlays related to the prior year's special charges (17.9) --
Other 8.8 9.4
Changes in assets and liabilities, exclusive of acquisitions:
Increase in receivables (36.9) (15.0)
Increase in inventories (9.2) (17.7)
Increase in payables 46.9 34.7
Net change in other assets and liabilities 4.2 2.7
---------- ----------
Net cash provided by continuing operations 59.0 67.5
Net cash (used in) provided by discontinued operations (7.6) 14.4
---------- ----------
Net cash provided by operating activities 51.4 81.9
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from dispositions of businesses 434.3 --
Capital investments, net (57.8) (30.9)
Companies acquired, net of cash acquired -- (21.1)
Net activity with joint ventures 1.8 (3.2)
Purchases of investments (9.5) (28.6)
Proceeds from sales of investments 7.9 40.7
---------- ----------
Net cash provided by (used in) investing activities 376.7 (43.1)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- 68.7
Repayment of debt (311.2) (65.5)
Net borrowings from bank lines of credit and
commercial paper 4.0 19.0
Cash dividends (10.1) (22.4)
Treasury stock purchases (23.6) (37.0)
Issuance of common stock 19.6 2.4
---------- ----------
Net cash used in financing activities (321.3) (34.8)
---------- ----------
Effects of exchange rate changes on cash and cash equivalents -- (0.4)
---------- ----------
Change in cash and cash equivalents 106.8 3.6
Cash and cash equivalents at January 1 52.4 4.7
---------- ----------
Cash and cash equivalents at June 30 $ 159.2 $ 8.3
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHITMAN CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
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, 1997. 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. On January 30, 1998, Whitman Corporation ("Whitman" or the "Company")
distributed ("the Distribution") all of the issued and outstanding shares
of Hussmann International, Inc. ("Hussmann") and Midas, Inc. ("Midas") to
Whitman shareholders of record on January 16, 1998. As a result of the
Distribution, Hussmann and Midas became independent publicly-owned
companies. Whitman has retained Pepsi-Cola General Bottlers, Inc. ("General
Bottlers") as its principal operating company. The financial information
has been reclassified to reflect Hussmann and Midas as discontinued
operations. The results from discontinued operations have been reduced by
income taxes of $0.1 million for the six month period ended June 30, 1998,
and $14.3 million and $20.2 million for the quarter and six month periods
ended June 30, 1997, respectively.
3. The Company recorded an extraordinary loss after taxes of $18.3 million
during January, 1998, associated with a tender offer made on January 13,
1998, for any and all of the outstanding 7.625% and 8.25% notes maturing
June 15, 2015, and February 15, 2007, respectively. In connection with the
tender offer, the Company repurchased 7.625% and 8.25% notes with principal
amounts of $91.0 million and $88.5 million, respectively. The Company paid
total premiums related to the tender of $26.4 million and wrote-off the
remaining unamortized discount and issue costs of $2.1 million. The Company
also repaid a term loan and notes with principal amounts of $50.0 million
scheduled to mature in 1998 and 1999, notes due in 2002 with principal
amounts of $50.0 million and industrial revenue bonds of $5.0 million due
2013. Charges associated with these repayments were not significant. Total
extraordinary charges of $28.7 million were offset by tax benefits of $10.4
million.
4. Interest expense, net, comprised the following:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C>
Interest expense $ (10.9) $ (17.2) $ (23.5) $ (34.6)
Interest income from Hussmann and Midas -- 6.0 1.6 12.3
Interest income 2.4 0.5 4.1 1.1
---------- ---------- ---------- ----------
Interest expense, net $ (8.5) $ (10.7) $ (17.8) $ (21.2)
========== ========== ========== ==========
</TABLE>
Interest income from Hussmann and Midas related to intercompany loans and
advances. The related interest expense recorded by Hussmann and Midas is
included in income (loss) from discontinued operations after taxes.
5. Net cash provided by operating activities reflected cash payments and
receipts for interest and income taxes as follows:
Six Months Ended
June 30,
----------------------------
1998 1997
-------- --------
(in millions)
Interest paid $ 29.3 $ 34.9
Interest received 3.2 1.4
Income taxes paid, net of refunds 3.4 19.5
The reduction in income taxes paid during the first six months of 1998
versus the comparable period in 1997 was due primarily to the impact of the
tax benefits arising from the extraordinary loss recorded during the first
quarter of 1998 (see Note 3).
Whitman also received interest from Hussmann and Midas during the first
quarter of 1998, which was included as part of the funds received to settle
intercompany indebtedness prior to the spin-offs. Interest received from
Hussmann and Midas during the first six months of 1997 was essentially the
same as the intercompany interest income recorded by the Company.
6. As of June 30, 1998, the components of inventory were approximately: raw
materials and supplies - 39 percent and finished goods - 61 percent.
7. During the six months ended June 30, 1998, the Company and General Bottlers
paid, and charged against previously recorded accruals, severance and
related benefits of $13.0 million. The payments were related to employees
terminated during 1997 and nearly 20 positions eliminated during the first
six months of 1998. These payments are classified in the Condensed
Consolidated Statement of Cash Flows as a component of "Cash outlays
related to the prior year's special charges."
8. The Company expects to infuse approximately $18 million of capital into its
Russian operations in August, 1998, which will primarily be used to pay
down borrowings under the Company's revolving credit facility in Russia.
9. The Company continues to be 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 difficult to estimate, 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.
At June 30, 1998, the Company had $25.7 million accrued to cover these
potential liabilities. Such amounts are determined using estimated
undiscounted future cash requirements, and have not been reduced by
potential future insurance recoveries.
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.
10. Foreign currency translation adjustments as shown on the Condensed
Consolidated Statements of Comprehensive Income include currency
translation losses of $1.0 million, $0.5 million and $8.8 million for the
quarter ended June 30, 1997 and six months ended June 30, 1998 and 1997,
respectively, which were related to discontinued operations. The cumulative
translation adjustment as of December 31, 1997, included cumulative
translation losses of $63.7 million related to discontinued operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash from operating activities decreased by $30.5 million
in the first six months of 1998 to $51.4 million. Net cash provided by
continuing operations decreased $8.5 million to $59.0 million in the first six
months of 1998 compared with the same period of the prior year. Income from
continuing operations for the first six months of 1998 was $24.5 million, $7.5
million higher than a year ago, offset by cash outlays related to special
charges amounting to $17.9 million during the first six months of 1998. The net
effect of these two items was the primary factor related to the decrease in net
cash provided by continuing operations compared with the prior year. The net
change in primary working capital (defined as receivables and inventories less
payables) for the first six months of 1998 versus the comparable period in 1997
was not significant. It is expected that of the remaining accrual related to the
special charges recorded in 1997, including termination benefits, approximately
$10 million will be paid during the latter half of 1998 and the remaining
balance of nearly $11 million is expected to be paid in 1999.
Investing activities during the first six months of 1998 included $434.3
million received in January, 1998, from Hussmann and Midas prior to their
spin-offs to settle intercompany indebtedness and to pay special dividends.
Capital investments, net of proceeds from asset sales, amounted to $57.8
million, up $26.9 million from the same period of last year, with the increased
spending principally attributable to additional vending machines placed in the
market. Cash used for acquisitions of $21.1 million in the first six months of
1997 related to General Bottlers' first quarter acquisition of the St.
Petersburg, Russia bottling operations. The net activity with joint ventures
represented loan repayments from and additional net investments in the
Pepsi-Cola bottling joint venture in Poland. Purchases and sales of investments
principally related to the Company's insurance subsidiary, which provides
certain levels of insurance for General Bottlers and for the discontinued
operations of Hussmann and Midas up to the date of the spin-offs. Funds provided
through premiums are invested by the insurance subsidiary and proceeds from the
sale of investments are used by the insurance subsidiary to pay claims and other
expenses. A substantial portion of the purchases and sales of such investments
are reinvested as the investments mature.
The Company's total debt has decreased to $608.9 million at June 30, 1998,
from $887.2 million at December 31, 1997, for a net change of $278.3 million. In
the first quarter of 1998, as discussed in Note 3 to the Condensed Consolidated
Financial Statements, the Company made debt repayments, including premiums, of
$311.2 million. As part of its ongoing share repurchase program, the Company
repurchased approximately 1.3 million shares and 1.6 million shares of its stock
for $23.6 million and $37.0 million in the first six months of 1998 and 1997,
respectively. Management currently has the authority to repurchase approximately
3.0 million additional shares under the existing program. The Company paid
common stock dividends of $10.1 million in the first six months of 1998, based
on a quarterly cash dividend of $0.05 per share, compared with $22.4 million in
the first six months of 1997, based on a quarterly cash dividend of $0.105 and
$0.115 per share in the first and second quarters of 1997, respectively. The
issuance of common stock from the exercise of stock options resulted in cash
inflows of $19.6 million and $2.4 million for the first six months of 1998 and
1997, respectively.
In May, 1998, the Company canceled its former credit facility related to
its operations in Russia and entered into a new contractual revolving credit
facility that permits total borrowings of up to $35 million. Each borrowing
under the facility expires in 360 days unless it is renewed, and borrowings
under the facility totaled $29.0 million at June 30, 1998. The Company expects
to infuse approximately $18 million of capital into the Russian operations in
August, 1998, which will be used primarily to pay down borrowings under this
facility. In addition to the facility in Russia, the Company has $300 million
available under a contractual revolving credit facility and $200 million
available under its commercial paper program. Neither facility was in use at
June 30, 1998. The Company believes that with its operating cash flows,
available lines of credit, and the potential for additional debt and equity
offerings, it has sufficient resources to fund its future growth and expansion,
including potential domestic or foreign franchise acquisitions.
RESULTS OF OPERATIONS
1998 SECOND QUARTER COMPARED WITH 1997 SECOND QUARTER
Sales increased 4.2 percent to $408.9 million in the second quarter of
1998, as summarized below:
Quarter Ended
June 30,
------------------------- %
1998 1997 Change
-------- -------- --------
(in millions)
Domestic $ 389.1 $ 370.7 5.0
International 19.8 21.8 -9.2
-------- --------
Total Sales $ 408.9 $ 392.5 4.2
======== ========
General Bottlers' domestic sales increased $18.4 million in the second
quarter of 1998 compared with the same period of 1997. This increase reflected
improved pricing and increased volumes. The average domestic net selling prices
for actual physical ("raw") cases rose 3.9 percent and volume, in raw cases,
grew 2.8 percent over the second quarter of 1997. In 8-ounce equivalent cases,
volume, including foodservice, increased 4.3 percent in the second quarter of
1998 compared with the same period of 1997. Sales growth was driven principally
by the convenience/gas channel, the vending channel, and fountain. In the first
quarter of 1998, the Company began reporting volume on an 8-ounce equivalent
basis, as well as raw cases, to better reflect the favorable impact of a package
mix shift towards the 20/24 ounce non-returnable ("NR") packages. The 20-ounce
NR package growth benefited from a significant increase in vending machine
placements during the first half of 1998.
Internationally, General Bottlers' sales for the second quarter of 1998
were $2.0 million lower than the same period of 1997. The decrease principally
reflected a $5.7 million decline in low margin contract sales in Russia,
partially offset by a 12.6 percent increase in sales in Poland.
Gross profit improved 3.1 percent to $153.5 million, primarily due to the
increase in revenues. The gross profit margin decreased to 37.5 percent of sales
in the second quarter of 1998, compared with 37.9 percent of sales in the
comparable period of 1997. This decrease reflected higher ingredient and
polyethylene ("PET") packaging costs domestically, partially offset by improved
profit margins on international sales, reflecting the favorable sales mix shift
in Russia away from low margin contract sales.
Selling, general and administrative (S,G&A) expenses decreased $3.8
million, or 3.8 percent. The decline reflected a reduction in corporate
headquarters' management and staff and a $2.7 million charge recorded in the
second quarter of 1997 related to the elimination of a layer of management at
General Bottlers. S,G&A expenses represented 23.6 percent of sales in the second
quarter of 1998, down 1.2 percentage points from the same period last year,
excluding the impact of the charge. Amortization expense was essentially
unchanged from last year.
Operating results for the Registrant's two geographic segments, as well as
corporate administrative expenses, are summarized below:
Quarter Ended
June 30,
------------------------- %
1998 1997 Change
-------- -------- --------
(in millions)
Domestic $ 60.8 $ 54.8 10.9
International (4.9) (5.7) 14.0
-------- --------
General Bottlers' Operating Income 55.9 49.1 13.8
Corporate Administrative Expenses (2.7) (4.2) 35.7
-------- --------
Total Operating Income $ 53.2 $ 44.9 18.5
======== ========
In the second quarter of 1998, General Bottlers' domestic operating income
increased $6.0 million, or 10.9 percent. The improvement in operating income was
due in part to higher volumes and improved pricing, the impact of the charge in
1997, and a more favorable package and channel mix. Excluding the impact of the
charge, domestic operating margins increased to 15.6 percent in the second
quarter of 1998 from 15.5 percent for the comparable period of 1997.
International operating losses were reduced by $0.8 million, or 14 percent.
Operating losses in Poland were reduced by $1.2 million to $2.2 million, due, in
part, to increased case volumes and lower S,G&A expenses. This improvement was
partially offset by increased operating losses in Russia and the Baltics,
principally reflecting costs associated with the continuing start-up and
expansion efforts.
Net interest expense decreased $2.2 million to $8.5 million, primarily due
to the repayment of debt using funds received from Hussmann and Midas prior to
the spin-off transactions. Cash in excess of debt repayments was invested in
short term instruments, resulting in higher external interest income in the
current quarter compared with the second quarter of 1997. Decreases in net
external interest expense were partially offset by the absence of interest
income on loans and advances to Hussmann and Midas, which were repaid in
conjunction with the spin-off transactions.
Other expense, net, decreased $0.6 million to $5.2 million in the second
quarter of 1998. The improvement was not related to any single significant item.
RESULTS OF OPERATIONS
1998 FIRST SIX MONTHS COMPARED WITH 1997 FIRST SIX MONTHS
Sales and revenues increased 4.8 percent to $760.9 million in the first six
months of 1998 compared with the same period of 1997, as summarized below:
Six Months Ended
June 30,
------------------------ %
1998 1997 Change
-------- -------- --------
(in millions)
Domestic $ 725.3 $ 693.5 4.6
International 35.6 32.5 9.5
-------- --------
Total Sales $ 760.9 $ 726.0 4.8
======== ========
General Bottlers' domestic sales increased $31.8 million in the first half
of 1998 compared with the same period of 1997. This increase reflected improved
pricing and increased volumes. The average domestic net selling prices for raw
cases rose 2.5 percent and volume, in raw cases, likewise grew 2.5 percent over
the first half of 1997. For the first half of the year, 8-ounce equivalent case
volume, including foodservice, increased 4.1 percent. Channel growth was
principally in convenience/gas, vending and fountain, reflecting a shift in
package mix to 20/24 ounce NR packages and increased focus on fountain. The 20
ounce NR package growth was also aided by an increase in vending machine
placements during the first six months of the year.
Internationally, General Bottlers' sales for the first half of 1998 were
$3.1 million higher than the same period of 1997. The increase principally
reflects sales growth in Poland due to a realignment to more PET packaging and
favorable results from newly introduced juice products. Sales in Russia and the
Baltics in the first half of 1998 increased modestly from the same period of
1997, reflecting a full six months of revenues in 1998, compared with four
months in the first half of 1997, partially offset by a $5.9 million decline in
low margin contract sales.
Gross profit improved 4.0 percent to $286.6 million, primarily due to the
increase in revenues. The gross profit margin decreased to 37.7 percent of sales
in the first half of 1998, compared with 38.0 percent of sales in the comparable
period of 1997. This decrease reflected higher ingredient and packaging costs
domestically, partially offset by improved profit margins on international
sales.
S,G&A expenses decreased $1.4 million, or 0.7 percent. The year-over-year
decline reflects a reduction in Whitman corporate staffing in 1998 and General
Bottlers' $2.7 million charge recorded in the second quarter of 1997 for
reductions in administrative overhead. S,G&A expenses represented 25.0 percent
of sales in the first half of 1998, down 1.0 percentage point from the same
period last year, excluding the impact of the charge. Amortization expense was
essentially unchanged from last year.
Operating results for the Registrant's two geographic segments, as well as
corporate administrative expenses, are summarized below:
Six Months Ended
June 30,
------------------------ %
1998 1997 Change
-------- -------- --------
(in millions)
Domestic $ 105.6 $ 95.9 10.1
International (10.8) (11.6) 6.9
-------- --------
General Bottlers' Operating Income 94.8 84.3 12.5
Corporate Administrative Expenses (6.3) (8.1) 22.2
-------- --------
Total Operating Income $ 88.5 $ 76.2 16.1
======== ========
In the first half of 1998, General Bottlers' domestic operating income
increased $9.7 million, or 10.1 percent. The improvement in operating income was
due in part to higher volumes, improved pricing and the effects of the $2.7
million charge taken in the second quarter of 1997. Excluding the impact of the
charge in 1997, domestic operating margins increased 0.4 percentage points to
14.6 percent in the first half of 1998 from the comparable period in the
previous year. The improved domestic operating margins reflected a favorable
shift in product mix to the more profitable NR packages and a more favorable
channel mix.
International operating losses decreased $0.8 million, or 6.9 percent.
Operating losses in Poland were reduced by $3.0 million to $5.1 million, due, in
part, to increased case volumes and lower S,G&A expenses. This reduction was
partially offset by higher operating losses in Russia and the Baltics,
reflecting costs from continuing start-up and expansion efforts.
Net interest expense decreased $3.4 million to $17.8 million, primarily due
to the repayment of debt using funds received from Hussmann and Midas prior to
the spin-off transactions. Cash in excess of debt repayments was invested in
short term instruments, resulting in higher external interest income in the
first half of 1998 compared with the first half of 1997. Decreases in net
external interest expense were partially offset by the decrease in interest
income on loans and advances to Hussmann and Midas, which were repaid in
conjunction with the spin-off transactions.
Other expense, net, decreased $0.3 million to $10.1 million in the first
half of 1998. The improvement was not related to any single significant item.
CURRENT AND PENDING ACCOUNTING CHANGES
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of a derivative and whether it
qualifies for hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. The Registrant
will adopt this accounting standard as required by January 1, 2000; adoption of
the standard is not expected to have a material impact on the consolidated
financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) April 30, 1998 Annual Meeting of Shareholders.
(b) Election of Directors
The following persons were elected at the Annual Meeting of
Shareholders held April 30, 1998, to serve as Directors for the ensuing
year:
Herbert M. Baum Charles W. Gaillard
Bruce S. Chelberg Jarobin Gilbert, Jr.
Richard G. Cline Victoria B. Jackson
Pierre S. duPont Charles S. Locke
Archie R. Dykes
(c) Matters Voted Upon
To consider and vote upon election of the Registrant's directors.
The following votes were recorded with respect thereto:
Nominees Votes For Votes Withheld
-------- --------- --------------
Herbert M. Baum 85,502,642 556,360
Bruce S. Chelberg 85,562,637 496,365
Richard G. Cline 85,571,563 487,439
Pierre S. duPont 85,562,622 496,380
Archie R. Dykes 85,509,143 549,859
Charles W. Gaillard 84,203,435 1,855,567
Jarobin Gilbert, Jr. 85,552,812 506,190
Victoria B. Jackson 85,564,520 494,482
Charles S. Locke 78,431,565 7,627,437
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12. Statement of Calculation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedules for the six months ended June 30, 1998
and 1997.
(b) Reports on Form 8-K.
None filed during the quarter ended June 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITMAN CORPORATION
Date: August 14, 1998 By: /s/ FRANK T. WESTOVER
---------------- ---------------------
Frank T. Westover
Executive Vice President
(As Chief Financial Officer and Duly
Authorized Officer of Whitman Corporation)
EXHIBIT 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION
OF THE RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from Continuing Operations
before Taxes $ 60.6 $ 44.6 $ 69.9 $ 127.7 $ 118.2 $ 80.3 $ 81.1
Fixed Charges 26.1 37.8 75.6 74.4 76.7 72.2 96.4
--------- -------- --------- -------- -------- -------- --------
Earnings as Adjusted $ 86.7 $ 82.4 $ 145.5 $ 202.1 $ 194.9 $ 152.5 $ 177.5
========= ======== ========= ======== ======== ======== ========
Fixed Charges:
Interest Expense $ 23.5 $ 34.6 $ 69.0 $ 68.2 $ 70.3 $ 67.0 $ 93.0
Preferred Stock Dividend Requirements
Of Majority Owned Subsidiary -- 0.7 1.7 1.5 1.4 1.1 --
Portion of Rents Representative of
Interest Factor 2.6 2.5 4.9 4.7 5.0 4.1 3.4
--------- -------- --------- -------- -------- -------- --------
Fixed Charges $ 26.1 $ 37.8 $ 75.6 $ 74.4 $ 76.7 $ 72.2 $ 96.4
========= ======== ========= ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges* 3.3x 2.2x 1.9x 2.7x 2.5x 2.1x 1.8x
========== ========= ========= ========= ======== ======== ========
</TABLE>
* Intercompany interest income from Hussmann and Midas was $1.6 million and
$12.3 million for the six months ended June 30, 1998 and 1997,
respectively, and was $23.1 million, $23.7 million, $21.8 million, $20.6
million and $16.2 million for the years ended December 31, 1997, 1996,
1995, 1994 and 1993, respectively. Such amounts are included in income from
continuing operations before taxes. If this intercompany interest income
had reduced interest expense, thereby reducing fixed charges and earnings
as adjusted, the ratio of earnings to fixed charges for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996,
1995, 1994 and 1993 would have been 3.5x, 2.7x, 2.3x, 3.5x, 3.2x, 2.6x and
2.0x, respectively.
Whitman Corporation recorded special charges of $49.3 million during the
third and fourth quarters of 1997. Excluding these special charges, the
ratio of earnings to fixed charges for the year ended December 31, 1997,
would have been 2.6x. If the fixed charges for 1997 were adjusted for the
intercompany interest income noted above, the ratio of earnings to fixed
charges would have been 3.3x.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WHITMAN
CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000049573
<NAME> WHITMAN CORPORATION
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 159,200 0
<SECURITIES> 0 0
<RECEIVABLES> 170,700 0
<ALLOWANCES> 2,100 0
<INVENTORY> 79,100 0
<CURRENT-ASSETS> 449,800 0
<PP&E> 917,700 0
<DEPRECIATION> 485,200 0
<TOTAL-ASSETS> 1,551,200 0
<CURRENT-LIABILITIES> 241,800 0
<BONDS> 608,900 0
0 0
0 0
<COMMON> 493,400 0
<OTHER-SE> (186,800) 0
<TOTAL-LIABILITY-AND-EQUITY> 1,551,200 0
<SALES> 760,900 726,000
<TOTAL-REVENUES> 760,900 726,000
<CGS> 474,300 450,400
<TOTAL-COSTS> 672,400<F1> 649,800<F6>
<OTHER-EXPENSES> 10,100 10,400
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,800<F2> 21,200<F7>
<INCOME-PRETAX> 60,600 44,600
<INCOME-TAX> 27,200 20,100
<INCOME-CONTINUING> 24,500<F3> 17,000<F8>
<DISCONTINUED> (500) 32,200
<EXTRAORDINARY> (18,300) 0
<CHANGES> 0 0
<NET-INCOME> 5,700 49,200
<EPS-PRIMARY> 0.06<F4> 0.48<F9>
<EPS-DILUTED> 0.06<F5> 0.48<F10>
<FN>
<F1>
TOTAL COSTS INCLUDE COSTS OF GOODS SOLD, S,G&A EXPENSES AND AMORTIZATION EXPENSE
OF $474,300, $190,200 AND $7,900, RESPECTIVELY.
<F2>
INTEREST EXPENSE, NET, INCLUDES INTEREST EXPENSE, INTEREST INCOME FROM HUSSMANN
INTERNATIONAL, INC. ("HUSSMANN") AND MIDAS, INC. ("MIDAS") AND OTHER INTEREST
INCOME OF $23,500, $1,600 AND $4,100, RESPECTIVELY. INTEREST INCOME FROM
HUSSMANN AND MIDAS RELATED TO INTERCOMPANY LOANS AND ADVANCES, WHICH WERE REPAID
PRIOR TO THE SPIN-OFFS. THE RELATED INTEREST EXPENSE RECORDED BY HUSSMANN AND
MIDAS IS INCLUDED IN THE LOSS FROM DISCONTINUED OPERATIONS AFTER TAXES.
<F3>
INCOME FROM CONTINUING OPERATIONS IS REDUCED BY MINORITY INTEREST OF $8,900.
<F4>
BASIC INCOME (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.24
EXTRAORDINARY LOSS (0.18)
NET INCOME $ 0.06
<F5>
DILUTED INCOME (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.24
EXTRAORDINARY LOSS (0.18)
NET INCOME $ 0.06
<F6>
TOTAL COSTS INCLUDE COSTS OF GOODS SOLD, S,G&A EXPENSES AND AMORTIZATION EXPENSE
OF $450,400, $191,600 AND $7,800, RESPECTIVELY.
<F7>
INTEREST EXPENSE, NET, INCLUDES INTEREST EXPENSE, INTEREST INCOME FROM HUSSMANN
AND MIDAS AND OTHER INTEREST INCOME OF $34,600, $12,300 AND $1,100,
RESPECTIVELY. INTEREST INCOME FROM HUSSMANN AND MIDAS RELATED TO INTERCOMPANY
LOANS AND ADVANCES. THE RELATED INTEREST EXPENSE RECORDED BY HUSSMANN AND MIDAS
IS INCLUDED IN INCOME FROM DISCONTINUED OPERATIONS AFTER TAXES.
<F8>
INCOME FROM CONTINUING OPERATIONS IS REDUCED BY MINORITY INTEREST OF $7,500.
<F9>
BASIC INCOME PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.17
DISCONTINUED OPERATIONS 0.31
NET INCOME $ 0.48
<F10>
DILUTED INCOME PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.17
DISCONTINUED OPERATIONS 0.31
NET INCOME $ 0.48
</FN>
</TABLE>
