1998
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 January 2, 1999.
[ ] 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 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
- ------------------------------- -----------------------------------------
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 March 11, 1999, the aggregate market value of the registrant's common
stock held by non-affiliates was $1,591.1 million. The number of shares of
common stock outstanding at that date was 91,260,659 shares.
<PAGE>
PART I
Item 1. BUSINESS.
General
Whitman Corporation ("Whitman" or the "Company") through its principal
operating company, Pepsi-Cola General Bottlers, Inc. ("Pepsi General"), is
engaged in the production and distribution of Pepsi-Cola brand products and a
variety of other non-alcoholic beverage products. Pepsi General accounts for
about 12 percent of all Pepsi-Cola products sold in the U.S. It serves a
significant portion of a twelve state region, primarily in the Midwest, with a
population of approximately 25 million people. In the last four years, Pepsi
General has more than doubled its potential market by signing exclusive
franchise agreements with PepsiCo, Inc. ("PepsiCo") for the northern and western
half of Poland during 1994, for the northwest portion of Russia, including St.
Petersburg, at the end of 1996, and for Belarus and the Baltic states (Estonia,
Latvia and Lithuania) in 1997.
In 1987, Whitman entered into an agreement with PepsiCo whereby PepsiCo
contributed cash and assets in exchange for a 20 percent interest in Pepsi
General. While Pepsi General manages all phases of its operations, including
pricing of its products, Pepsi General and PepsiCo exchange production,
marketing and distribution information, benefiting both companies' respective
efforts to lower costs, improve productivity and increase product sales.
On January 25, 1999, Whitman announced that its Board of Directors approved
a new business relationship with PepsiCo, including the Contribution and Merger
Agreement (the "Agreement"), which is subject to shareholder approval. See Note
19, Proposed New Business Relationship with PepsiCo, to the Consolidated
Financial Statements. The approved transaction would result in Pepsi General
selling its franchises in Marion, Virginia, Princeton, West Virginia and the St.
Petersburg area of Russia to PepsiCo. Territories to be acquired by or
contributed to Pepsi General would include domestic franchises in Cleveland,
Ohio, Dayton, Ohio, Indianapolis, Indiana, St. Louis, Missouri and southern
Indiana, and foreign franchises in Hungary, the Czech Republic, Slovakia and the
balance of Poland.
The Company was previously engaged in the refrigeration systems and
equipment business conducted through Hussmann International, Inc. ("Hussmann")
and in the automotive services business through Midas, Inc. ("Midas"). On
January 30, 1998, the Company distributed to shareholders all of the common
stock of Hussmann and Midas in tax-free spin-offs.
Forward-Looking Statements
This annual report on Form 10-K contains certain forward-looking
information that reflects management's expectations, estimates and assumptions,
based on information available at the time this Form 10-K was prepared. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
"plan", "intend" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements involve risks,
uncertainties and other factors which may cause the actual performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements, including, but not limited to, the following: competition, including
product and pricing pressures; changing trends in consumer tastes; changes in
the Company's relationship and/or support programs with PepsiCo and other brand
owners; market acceptance of new product offerings; weather conditions; cost and
availability of raw materials; availability of capital; labor and employee
benefit costs; unfavorable interest rate and currency fluctuations; unexpected
costs associated with Year 2000 conversions or the business risks associated
with potential Year 2000 non-compliance by the Company, customers and/or
suppliers; costs of legal proceedings; and general economic, business and
political conditions in the countries and territories where the Company
operates.
These events and uncertainties are difficult or impossible to predict
accurately and many are beyond the Company's control. The Company assumes no
obligation to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
Marketing and Distribution
Pepsi General's business is seasonal and subject to weather conditions,
which have a significant impact on sales. In the United States, Pepsi General
sells it products across a significant portion of a twelve state region,
including: Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Missouri, Ohio,
Tennessee, Virginia, West Virginia and Wisconsin. As part of its long-term
strategy, Pepsi General will seek to acquire additional domestic franchises,
principally in the Midwest.
In 1998, approximately 86 percent of Pepsi General's actual physical
("raw") domestic case volume was from Pepsi-Cola brand products, including:
Pepsi, Diet Pepsi, Pepsi One, Caffeine Free Pepsi, Caffeine Free Diet Pepsi,
Wild Cherry Pepsi, Diet Wild Cherry Pepsi, Mountain Dew, Diet Mountain Dew,
Caffeine Free Mountain Dew, Storm, Slice products, Mug Root Beer, Mug Cream
Soda, All-Sport and Aquafina still water. Pepsi General also distributes other
brands, including: Dr Pepper, 7Up, Sunny Delight, Hawaiian Punch, Seagram's
mixers, Ocean Spray, Lipton Tea, Frappuccino and Avalon spring water, which
account for the remaining 14 percent of volume.
In each market, Pepsi General sells approximately 320 different
brand/package combinations through its three major channels: take-home, cold
drink and fountain. The take-home segment includes supermarkets/grocery stores,
convenience stores, gas stations, mass merchandisers, membership clubs and drug
stores. The supermarkets/grocery stores channel, where Pepsi General is the
market share leader in its territories, accounts for approximately 45 percent of
total domestic raw case volume, but it is also the most price competitive
channel. The cold drink channel includes vending machines and coolers. The full
service vending channel has the highest gross margin of any distribution
channel, because it eliminates the middleperson and enables Pepsi General to
establish the retail price. Pepsi General owns a majority of the vending
machines used to dispense its products and will continue to invest extensively
in vending machines, specifically those dispensing 20-ounce non-returnable
("NR") bottles. The fountain segment includes fast-food accounts and other
restaurants, hotels, hospitals, movie theaters and other commercial accounts.
Pepsi General will continue to aggressively pursue fountain opportunities.
Volume growth has historically come from the supermarkets sector, where
competition is intense. Pepsi General has recently begun to focus on obtaining
more of its growth from higher margin 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. Pepsi General operates more than 1,350 routes
in its 12 domestic sales divisions, 109 routes in Poland, and 41 routes in
Russia and the Baltics. Pepsi General's fleet includes approximately 3,800
vehicles, the majority of which are owned. For several years, Pepsi General has
been expanding its bulk distribution system, Pepsi Express, for larger customers
in an effort to improve productivity.
New Products
During 1998, Pepsi General continued to expand its product lines by adding
Storm in certain test markets. The addition of Storm is expected to provide a
competitive entrant in the lemon/lime category. In addition, Pepsi General added
Pepsi One, a new Pepsi brand diet cola, in the fourth quarter of 1998.
As part of its long-term strategic goal to transform itself into a total
beverage company and grow faster than the industry, Pepsi General will continue
to identify new products, principally in its international markets, to
compliment its existing product offerings. However, the Company is precluded by
agreement from adding new products which compete directly with Pepsi and other
franchised product offerings.
International Expansion
In May, 1994, Pepsi General established a joint venture with PepsiCo's
existing manufacturing operations in Poland and entered into a franchise
agreement giving it the exclusive right to distribute products in the northern
and western regions of Poland. These distribution rights cover about 40 percent
of the population, a market of approximately 16 million people.
On December 31, 1996, Pepsi General acquired the assets of the St.
Petersburg, Russia franchise from PepsiCo, which permits Pepsi General to
produce and distribute Pepsi-Cola brand products in St. Petersburg, as well as
the surrounding area in the northwest region of Russia, including Kaliningrad.
In 1997, Pepsi General also acquired franchise rights for Belarus and the Baltic
countries of Estonia, Latvia and Lithuania. Distribution in the Baltic countries
began during the first quarter of 1997. Pepsi General currently serves markets
totaling nearly 40 million people in Russia and Eastern Europe, compared to a
market of 25 million people in the U.S.
By the end of 1998, Pepsi General had invested approximately $193 million
in Eastern Europe, including Russia and the Baltics.
The Company has experienced operating losses in Poland each year since
beginning operations in 1994. In spite of unusually cold and wet weather
conditions that adversely affected sales in 1998, Pepsi General reduced its
losses in Poland by 6.8% from $8.1 million in 1997 to $7.5 million in 1998 as it
cut costs and shifted its focus to higher margin products. Operations in Russia
and the Baltics were negatively impacted by the Russian economic crisis. The
international territories to be acquired from PepsiCo, net of the sale of the
St. Petersburg franchise, are expected to increase the losses to be incurred in
1999.
Bottling Contracts
Pepsi General conducts its business primarily under bottling agreements
with PepsiCo. These contracts give Pepsi General exclusive rights to produce,
market and distribute Pepsi-Cola products in authorized containers and to use
the related trade names and trademarks in the specified territories. These
franchises require Pepsi General, among other things, to purchase its
concentrate requirements solely from PepsiCo, at prices established by PepsiCo,
and to promote diligently the sale and distribution of Pepsi brand products.
Pepsi franchise agreements in the United States are issued in perpetuity,
subject to termination only upon failure to comply with their terms. Pepsi
General has similar arrangements with other companies whose brands it produces
and distributes.
Pepsi franchise agreements outside the United States are for fifteen years
in duration. Pepsi General expects these agreements to be renewed prior to their
termination. Commencing with the completion of the Agreement with PepsiCo, the
franchise agreements outside the United States will be granted in perpetuity,
subject to certain performance criteria.
Advertising
Pepsi General obtains the benefits of national advertising campaigns
conducted by PepsiCo and the other beverage companies whose products it sells.
Pepsi General supplements PepsiCo's national ad campaign by purchasing
advertising in its local markets, including the use of television, radio, print
and billboards. Pepsi General also makes extensive use of in-store point-of-sale
displays to reinforce the national and local advertising and to stimulate
demand.
Raw Materials
Excluding its water products, virtually all of Pepsi General's products use
concentrates, which are supplied by the franchisors. In addition to
concentrates, Pepsi General purchases sweeteners (e.g., fructose), carbon
dioxide, cans, plastic bottles, closures and other packaging materials,
including cardboard, for use in the production and packaging of Pepsi-Cola and
other non-alcoholic beverages. All raw materials and supplies, excluding
concentrates, are purchased from multiple suppliers. The packaging materials
(bottles, cans, caps, closures, cartons and cases) are obtained from suppliers
approved by the franchisors. Pepsi General obtains water for use in the domestic
production process from publicly available sources.
Pepsi General negotiates contracts for its sweetener and packaging material
requirements to minimize fluctuations in costs and ensure the availability of
those materials and supplies. The Company has entered into contracts, which
include a significant portion of its expected requirements in 1999, for cans,
plastic bottles, fructose and cardboard. A portion of the requirements for cans,
plastic bottles and fructose are subject to price fluctuations under these
contracts based on commodity price changes in aluminum, resin and corn,
respectively.
The inability of suppliers to deliver concentrates or other products to
Pepsi General could adversely affect operating results. None of the raw
materials or supplies currently in use are in short supply, although factors
outside of the control of Pepsi General could adversely impact the future
availability of these supplies.
Competition
Americans consume more soft drinks than any other beverage, including
water. Competition among soft drinks of all types is intense, particularly in
the principal cola drink market which accounts for approximately 60 percent of
the total soft drink market. The carbonated soft drink market is dominated by
Pepsi-Cola and Coca-Cola with a combined estimated market share of approximately
75 percent in 1998. Other major brands include Dr Pepper, 7Up and Royal Crown
Cola.
The non-alcoholic beverage business is also extremely competitive. Pepsi
General competes with many forms of commercial beverages in addition to
carbonated soft drinks, such as coffee, coffee drinks, tea, tea drinks, juices,
juice drinks, milk, milk drinks and bottled water. The principal competitive
factors in the carbonated soft drink industry are price, brand recognition and
brand image. In the carbonated soft drink category the principal competition is
Coca-Cola brand products.
Employees
Whitman employed 6,526 people worldwide as of January 2, 1999. This
included 5,602 active employees in its domestic operations and 924 people
employed in its international operations. Employment levels are subject to
seasonal variations. The Company is a party to collective bargaining agreements
covering approximately 3,000 employees. Twelve agreements covering approximately
565 employees will be renegotiated in 1999. Whitman regards its employee
relations as generally satisfactory.
Government Regulations
Pepsi General's domestic production and marketing, including container
labeling, are subject to the rules and regulations of the United States Food and
Drug Administration and other federal, state and local governmental agencies.
State rules and regulations include beverage container deposit laws in Michigan,
Iowa and the city of Columbia, Missouri. While the Company actively supports
environmental and anti-litter programs, it also attempts to mitigate any impact
resulting from the enactment of rules and regulations regarding deposits and
restrictive packaging which, if enacted, could adversely affect the operating
results of the Company.
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.
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 the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") at
off-site locations involving other major corporations which have also been named
as potentially responsible parties ("PRPs"). 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 incurred by Pneumo Abex, and any resulting obligation of Whitman to
indemnify Pneumo Abex, may not be expended 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. Based upon an analysis of the various agreements subsequently
negotiated with contractors to perform the ROD, Whitman management is confident
that the cost of implementation of the remedy required by the Consent Decree
will be significantly less than the estimated cost set forth in the Amended ROD.
Additionally, in a lawsuit brought against other PRPs that did not execute the
Consent Decree, Pneumo Abex and Whitman recovered approximately $3.1 million in
settlements relating to response costs at the Portsmouth site.
Management believes that potential insurance recoveries have defrayed and
will continue to 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 1997 and 1998, 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, 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 its results of operations.
Item 2. PROPERTIES.
Pepsi General's domestic manufacturing facilities include four bottling
plants, four combination bottling/canning plants and four canning plants with a
total manufacturing capacity of approximately 533,000 square feet. International
manufacturing facilities include two plants in Poland owned by the manufacturing
joint venture. Russia currently obtains product through a co-packing arrangement
in which it supplies the equipment and raw materials necessary to produce its
finished goods. During 1998, the Company began construction of a manufacturing
facility located in the industrial region of St. Petersburg, named Parnas, to
produce finished goods for Russia. In addition, Pepsi General operates 71
distribution facilities, including 16 distribution facilities located in Eastern
Europe. Seventeen of the distribution facilities are leased and approximately 13
percent of Pepsi General's production is from its one leased domestic plant. The
Company believes all facilities are adequately equipped and maintained and
capacity is sufficient for its current needs. Pepsi General currently operates a
fleet of approximately 3,200 vehicles in the U.S. and approximately 600 vehicles
internationally to service its existing routes.
In addition, Whitman owns various industrial, commercial and residential
real estate properties in the United States and a leasing company, which leases
approximately 2,000 railcars, comprised of locomotives, flatcars and hopper
cars, to the Illinois Central Railroad Company.
Item 3. LEGAL PROCEEDINGS.
Whitman and its subsidiaries are defendants in numerous lawsuits in the
ordinary course of business, none of which, in the opinion of management, is
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.
<PAGE>
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 1998 and 1997.
Common Stock
------------------------------------
High Low Dividend
-------- -------- --------
1998:
- -----
1st quarter $ 26.625 $ 15.563 $ 0.05
2nd quarter 23.750 19.000 0.05
3rd quarter 23.375 14.875 0.05
4th quarter 25.438 15.375 0.05
1997:
- -----
1st quarter $ 24.625 $ 21.625 $ 0.105
2nd quarter 26.750 22.625 0.115
3rd quarter 27.250 24.125 0.115
4th quarter 28.125 24.250 0.115
The table above reflects the high and low stock prices for Whitman common
stock prior to and subsequent to the spin-offs of Hussmann and Midas, which
occurred on January 30, 1998.
There were 15,775 shareholders of record at January 2, 1999.
Item 6. SELECTED FINANCIAL DATA.
The following table presents summary operating results and other statistics
of Whitman, and should be read along with Management's Discussion and Analysis
of Financial Condition and Results of Operations, the Consolidated Financial
Statements and accompanying notes included elsewhere in this Form 10-K.
The following transactions were recorded during the periods presented:
- In 1998, the Company recorded an extraordinary loss, net of income tax
benefits of $10.4 million, resulting from the early extinguishment of
debt (see Note 3, Extraordinary Loss on Early Extinguishment of Debt,
to the Consolidated Financial Statements).
- In 1997, the Company recorded special charges of $49.3 million related
to the restructuring of Pepsi General's organization, the severance of
essentially all of the Whitman Corporate management and staff, and
expenses associated with the spin-offs of Hussmann and Midas (see Note
4, Special Charges, to the Consolidated Financial Statements). These
charges reduced operating income for domestic and international
operations of Pepsi General by $11.1 million and $3.7 million,
respectively, and increased corporate administrative expenses by $34.5
million.
- In 1997, Hussmann and Midas, which were reclassified to discontinued
operations in December, 1997, recorded special charges with an
after-tax cost of $93.4 million (see Note 2, Discontinued Operations,
to the Consolidated Financial Statements).
- In 1996, the Company recorded an $8.7 million charge, principally for
asset write-downs at Pepsi General's joint venture in Poland. The
charge, which is included in "other expense, net," reduced minority
interest by $1.7 million.
- In 1994, the Company recorded a $24.2 million unrealized loss on the
investment in Northfield Laboratories Inc., which is included in "other
expense, net."
<PAGE>
Whitman Corporation
SELECTED FINANCIAL DATA
(in millions, except per share and employee data)
<TABLE>
<CAPTION>
For the fiscal years 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales:
Domestic $ 1,551.5 $ 1,464.0 $ 1,451.1 $ 1,413.9 $ 1,255.4
International 83.5 93.5 50.3 34.8 0.7
---------- ---------- ---------- ---------- ----------
Total $ 1,635.0 $ 1,557.5 $ 1,501.4 $ 1,448.7 $ 1,256.1
========== ========== ========== ========== ==========
Operating income:
Domestic $ 232.0 $ 200.3 $ 224.4 $ 209.0 $ 187.7
International (17.2) (18.7) (12.1) (11.3) (2.2)
---------- ---------- ---------- ---------- ----------
Total before corporate administrative
expenses 214.8 181.6 212.3 197.7 185.5
Corporate administrative expenses (11.0) (51.4) (17.5) (16.6) (16.4)
---------- ---------- ---------- ---------- ----------
Total operating income 203.8 130.2 194.8 181.1 169.1
Interest expense, net (36.1) (42.3) (41.5) (47.6) (45.4)
Other expense, net (15.5) (18.0) (25.6) (15.3) (43.4)
---------- ---------- ---------- ---------- ----------
Income before income taxes 152.2 69.9 127.7 118.2 80.3
Income taxes 69.7 37.9 61.1 52.8 35.6
Minority interest 20.0 16.2 18.8 18.6 18.2
---------- ---------- ---------- ---------- ----------
Income from continuing operations 62.5 15.8 47.8 46.8 26.5
Income (loss) from discontinued operations (0.5) (11.7) 91.6 86.7 76.7
Extraordinary loss on early extinguishment of
debt after taxes (18.3) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 43.7 $ 4.1 $ 139.4 $ 133.5 $ 103.2
========== ========== ========== ========== ==========
Cash dividends per common share $ 0.20 $ 0.45 $ 0.41 $ 0.37 $ 0.33
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 101.1 101.6 104.8 104.9 105.5
Incremental effect of stock options 1.8 1.3 1.2 1.1 0.7
---------- ---------- ---------- ---------- ----------
Diluted 102.9 102.9 106.0 106.0 106.2
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.62 $ 0.16 $ 0.46 $ 0.44 $ 0.25
Discontinued operations (0.01) (0.12) 0.87 0.83 0.73
Extraordinary loss on early debt extinguishment (0.18) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 0.43 $ 0.04 $ 1.33 $ 1.27 $ 0.98
========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.61 $ 0.15 $ 0.45 $ 0.44 $ 0.25
Discontinued operations (0.01) (0.11) 0.87 0.82 0.72
Extraordinary loss on early debt extinguishment (0.18) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income $ 0.42 $ 0.04 $ 1.32 $ 1.26 $ 0.97
========== ========== ========== ========== ==========
OTHER STATISTICS:
Total assets $ 1,569.3 $ 2,029.7 $ 2,080.6 $ 2,050.5 $ 1,853.8
Long-term debt $ 603.6 $ 604.7 $ 821.7 $ 810.3 $ 704.0
Capital investments $ 159.1 $ 83.4 $ 87.2 $ 111.1 $ 66.0
Depreciation and amortization $ 77.7 $ 73.8 $ 75.2 $ 70.6 $ 64.3
Number of employees 6,526 6,381 5,863 5,739 5,044
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Net cash provided by continuing operations increased by $16.9 million to
$169.8 million in 1998. Income from continuing operations in 1998 increased by
$46.7 million, principally due to the after tax impact in 1997 of special
charges of $31.6 million. Cash outlays related to special charges totaled $24.4
million during 1998, compared to $2.4 million in 1997. The increase in deferred
taxes related primarily to increased capital spending, foreign branch loss
activity, and the tax deductibility of cash outlays related to 1997 special
charges. Changes in primary working capital (defined as receivables and
inventories less payables) required net additional cash of $8.6 million in 1998
compared with $13.8 million in the prior year. Individually, components of
primary working capital increased due, in part, to increased production and
sales activities in late 1998 versus late 1997. The change in other assets and
liabilities was due, in part, to tax benefits of $10.4 million resulting from
the debt tenders in January, 1998 (see Note 3, Extraordinary Loss on
Early Extinguishment of Debt, to the Consolidated Financial Statements).
Investing activities during 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. The Company made capital
investments of $155.4 million, net of proceeds from dispositions, in its
operations during 1998 compared with $81.5 million in the previous year, with
increased spending principally attributable to additional vending machines
placed in the market. It is expected that capital spending in 1999, excluding
acquisitions, will be lower than 1998 levels due, in part, to a planned decrease
in international spending. Capital spending in the international operations in
1998 included expenditures for a manufacturing facility in Russia. In 1997,
Pepsi General acquired the Pepsi-Cola bottler in St. Petersburg from PepsiCo for
$20.2 million. Cash received, net of investments made, from the Company's joint
venture in Poland was $3.7 million in 1998 compared to net investments in the
joint venture of $2.2 million in 1997.
Purchases and sales of investments principally relate to the Company's
insurance subsidiary, which provides certain levels of insurance for Pepsi
General and 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 such
investments are reinvested as they mature. In December, 1998, the Company repaid
a loan, including accrued interest, from its insurance subsidiary. These funds,
totaling $71.8 million, were invested in cash and equivalents at year end by the
Company's insurance subsidiary.
The Company's total debt decreased $283.6 million to $603.6 million at
January 2, 1999, from $887.2 million at December 31, 1997. In the first quarter
of 1998, as discussed in Note 3, Extraordinary Loss on Early Extinguishment of
Debt, to the 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 2.0 million shares and
3.3 million shares of its common stock for $37.7 million and $82.1 million in
1998 and 1997, respectively. Subsequent to January 2, 1999, the Company has
repurchased 11.6 million shares for $221.4 million through March 23, 1999. The
Company paid dividends of $20.2 million in 1998, based on an annual cash
dividend rate of $0.20 per common share, compared with $45.6 million in 1997,
based on an annual cash dividend rate of $0.45 per share. The issuance of common
stock, including treasury shares, for the exercise of stock options resulted in
cash inflows of $21.4 million in 1998, compared with $11.8 million in 1997.
The Company has $200 million available under its commercial paper program
and $300 million available under a contractual revolving credit facility for
necessary borrowings or as back-up for the Company's commercial paper program.
Neither facility was in use at January 2, 1999. In addition, the Company
maintains a revolving credit facility related to its operations in Russia,
permitting total borrowings of up to $35.0 million. Borrowings under the
facility amounted to $23.5 million as of January 2, 1999. On January 25, 1999,
the Company announced the terms of the Agreement with PepsiCo, which includes
issuing 54 million shares of common stock of New Whitman, the entity formed to
carry out the Agreement, and incurring debt obligations of approximately $300
million. In addition, the Company has agreed to repurchase up to 16 million
shares, or $400 million of its common stock, whichever is less, during the 12
month period following the close of the transaction. PepsiCo has agreed that the
shares repurchased subsequent to January 2, 1999 may be used to reduce the
repurchase commitment. The Company believes that with its existing operating
cash flows and expected operating cash flows from newly acquired territories
from PepsiCo, available lines of credit, and the potential for additional debt
and equity offerings, New Whitman will have sufficient resources to fund its
future growth and expansion, including potential domestic or international
franchise acquisitions.
Operating Results - 1998 compared with 1997
For a description of the Company's major products and its principal
markets, reference is made to Part I, Item 1, Business, and to Note 16, Segment
Reporting, to the Consolidated Financial Statements.
Sales
Sales increased by $77.5 million, or 5.0 percent, in 1998 to $1,635.0
million.
Domestic sales increased by $87.5 million, or 6.0 percent, in 1998 to
$1,551.5 million. This increase reflects improvements in mix, pricing and
increased volumes. The average domestic net selling price per raw case rose 2.5
percent and volume, in raw cases, grew 3.5 percent over 1997. In 8-ounce
equivalent cases, volume, including foodservice, increased 5.3 percent in 1998
to 444.5 million cases. Sales growth was driven principally by the
convenience/gas station channel, the vending channel, and the fountain channel.
Volume growth was led primarily by improved demand for the Mountain Dew, Dr
Pepper, and Lipton Tea brands. Also contributing to the increased volume was
double digit growth in the water brands Aquafina and Avalon, and the strong
performance of Pepsi brand product sales, which included the introduction of
Pepsi One and Storm. In 1998, the Company began reporting volume on an 8-ounce
equivalent basis, as well as raw cases, to better reflect the impact of package
mix shift towards the 20/24-ounce NR packages. The 20-ounce NR package growth
benefited from a significant increase in vending machine placements during 1998.
International sales decreased by $10.0 million to $83.5 million,
principally reflecting a $12.5 million decline in contract sales and the adverse
effects of the economic crisis in Russia. Sales for Russia in the fourth quarter
of 1998, which are reported on a two-month lag, were $2.5 million compared to
$8.0 million in the comparable period of 1997. However, 1998 included a full
twelve months of sales for Russia compared to ten months in the previous year,
which partially offset the lower contract sales and economic downturn. In
addition, Poland's sales were adversely impacted by unusually cold weather,
which depressed industry sales, partially offset by sales growth resulting from
a product mix shift to more polyethylene ("PET") packaging and favorable results
from newly introduced juice products.
Gross Profit
The Company's consolidated gross profit increased by $25.6 million, or 4.4
percent, to $610.5 million. The consolidated gross profit margin declined to
37.3 percent of sales in 1998 from 37.6 percent in 1997. This reduction
principally reflected higher costs for concentrate, fructose, and packaging in
the domestic operations, which reduced the domestic gross profit margin by 0.4
percentage points to 38.3 percent. Internationally, the gross profit margin
increased by 1.3 percentage points to 20.4 percent from 19.1 percent in the
previous year, due to higher margins in Poland resulting from a product mix
shift to more PET packaging. However, partially offsetting this improvement was
the economic downturn in Russia, which slowed demand and lowered gross margins
as the sales volume was insufficient to absorb fixed manufacturing overhead.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses increased by $1.4
million, or 0.4 percent, and represented 23.9 percent of sales, compared with 25
percent in 1997. This lower percentage rate reflected, among other items,
increases in various forms of support from PepsiCo and the reduction in
corporate headquarters' management and staff. Corporate administrative expenses,
excluding special charges of $34.5 million recorded in 1997, declined from $16.9
million in 1997 to $11.0 million in 1998. Furthermore, the 1997 S,G&A included a
$2.7 million charge recorded by Pepsi General in the second quarter of 1997 for
reductions in administrative overhead.
Operating Income
Operating income increased by $73.6 million, or 56.5 percent, to $203.8
million. The increase was primarily the result of special charges incurred
during the third and fourth quarters of 1997 totaling $49.3 million (see Note 4,
Special Charges, to the Consolidated Financial Statements), as well as improved
operating results in the domestic operations.
Pepsi General's domestic operating income was up $31.7 million in 1998, or
15.8 percent, from the previous year to $232 million. Included in the 1997
results were special charges of $11.1 million, primarily related to the
consolidation of its divisions. Excluding special charges recorded in 1997,
Pepsi General's domestic operating income increased $20.6 million, or 9.7
percent. The improvement in operating income was due in part to higher volumes,
mix shift towards the higher margin 20/24-ounce NR packages and the effects of
the $2.7 million charge recorded in the second quarter of 1997. Excluding the
impact of the charges in 1997, domestic operating margins increased 0.6
percentage points from 1997 to 15.0 percent in 1998. The improved operating
margins reflected a favorable shift in product mix to the high margin NR
packages and a more favorable channel mix.
Pepsi General's international operating losses were $17.2 million in 1998
compared to $18.7 million a year ago, which included $3.7 million of special
charges. Excluding these special charges, international operating losses
increased by $2.2 million. This increase was caused primarily by the financial
crisis in Russia, partially offset by improved results in Poland attributable to
increased sales of product in PET packages and the introduction of new juice
products.
Interest and Other Expenses
Net interest expense decreased $6.2 million to $36.1 million, primarily due
to the repayment of debt using funds received from Hussmann and Midas
immediately prior to the spin-off transactions. Cash in excess of debt
repayments was invested in short-term instruments, resulting in higher interest
income in 1998 compared with 1997. Decreases in net 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 $2.5 million to $15.5 million in 1998. The
improvement was due, in part, to losses from asset sales/retirements included in
1997 and the elimination of preferred dividends (see Note 13, Pepsi General
Non-Voting Preferred Stock, to the Consolidated Financial Statements).
Environmental Liabilities
Environmental liabilities are discussed further in Part I, Item 1,
Business, and Note 15, Environmental and Other Contingencies, to the
Consolidated Financial Statements.
Operating Results - 1997 compared with 1996
Sales
Sales increased by $56.1 million, or 3.7 percent, in 1997 to $1,557.5
million.
Domestic sales increased by $12.9 million, or 0.9 percent, in 1997 to
$1,464.0 million. Unit case volume (which represented approximately 88 percent
of total sales) in the U.S. increased by 4.8 percent. The increase in volume
principally reflected growth in Mountain Dew, Dr Pepper, Mug Root Beer and Sunny
Delight, with Pepsi brand product sales volume being essentially flat with 1996.
This increase in volume was offset to a large degree by lower average net
selling prices. The average net selling price on this unit case volume fell 4.2
percent below the prior year, reflecting the extremely competitive pricing
environment throughout Pepsi General's domestic markets, particularly in the
supermarket channel.
International sales increased by $43.2 million to $93.5 million. The
increase principally reflected Pepsi General's expansion into newly acquired
territories in Russia and the Baltics.
Gross Profit
The Company's consolidated gross profit increased by $7.9 million, or 1.4
percent, to $584.9 million. The gross profit margin declined to 37.6 percent of
sales in 1997 from 38.4 percent in 1996. This reduction principally reflected
the adverse effects of the competitive pricing pressures in Pepsi General's
domestic markets. The domestic gross profit margin declined by 0.4 percentage
points to 38.7 percent. Contributing to the decline in the consolidated margin
were lower margin sales in the newly acquired territories in Russia and the
Baltics, reflecting an extremely competitive pricing environment and certain
inefficiencies related to the start-up of these operations. Margins in Poland
improved, reflecting the benefits of increased volume and manufacturing
efficiencies. Internationally, the gross profit margin decreased by 0.7
percentage points to 19.1 percent from 19.8 percent in the previous year.
Selling, General and Administrative Expenses
S,G&A expenses increased by $22.9 million, or 6.2 percent, compared with
the 3.7 percent increase in sales. As a result, S,G&A expenses increased to 25.0
percent of sales, compared with 24.4 percent in 1996. The higher level of
expenses reflected, among other items, the start-up of operations in Russia and
the Baltics, which accounted for more than half of the increase in S,G&A
expenses. The increase in S,G&A expenses as a percent of sales also reflected
the competitive pricing environment during 1997. Corporate administrative
expenses declined slightly from $17.5 million in 1996 to $16.9 million in 1997.
Special Charges
During 1997, the Company recorded special charges totaling $49.3 million,
including $14.8 million recorded at Pepsi General to consolidate the number of
its domestic divisions, including reductions in staffing levels, and to
write-down certain assets in its domestic and foreign operations. Special
charges of $34.5 million were recorded for the Whitman corporate office,
principally relating to the severance of essentially all of the Whitman
corporate management and staff and for expenses associated with the spin-offs.
Detailed information with respect to the special charges recorded in 1997,
related expenditures in 1997 and 1998, and the remaining accrued liabilities at
the end of fiscal 1998 is presented in Note 4, Special Charges, to the
Consolidated Financial Statements. At the end of fiscal 1998, accrued
liabilities of $14.5 million are intended to cover deferred severance payments
and certain employee benefits. The Company has classified the accruals as other
current liabilities because it expects that the severance and benefit payments
will be disbursed in 1999.
At the time the special charges were recorded in 1997, the Company
anticipated that corporate expenses would be reduced by approximately $7.0
million on an annualized basis, but indicated the estimated cost reductions
would not be fully realized in the first year. In 1998, the cost reduction goal
was substantially achieved, as corporate administrative expenses declined from
1997 by $5.9 million.
Operating Income
Operating income declined by $64.6 million, or 33.2 percent, to $130.2
million. The decrease was primarily the result of special charges of $49.3
million.
Pepsi General's domestic operating income was down $24.1 million in 1997,
or 10.7 percent, from the previous year to $200.3 million. Included in these
results were special charges of $11.1 million, primarily related to the
consolidation of its divisions. The lower earnings also reflected the effects of
lower gross profit margins and higher distribution costs which were caused, in
part, by higher unit case volumes.
Pepsi General's international operating loss increased by $6.6 million from
the previous year to $18.7 million, including special charges of $3.7 million in
1997. The increased operating losses also reflected start-up losses of $6.9
million in Russia and the Baltics, offset by improved results in Poland, which
reduced its operating losses by approximately one-third.
Interest and Other Expenses
Interest expense, net, did not change significantly on a year over year
basis. Other expenses, net, decreased by $7.6 million, which was primarily
attributable to an $8.7 million charge recorded in 1996, principally relating to
asset write-downs at Pepsi General's joint venture in Poland.
Discontinued Operations
The spin-offs of Hussmann and Midas occurred on January 30, 1998. Prior to
the spin-offs, Hussmann and Midas paid Whitman a total of $434.3 million to
settle intercompany indebtedness and pay special dividends. Whitman did not
record any gain or loss on the spin-offs. The distribution of the Hussmann and
Midas common stock reduced Whitman shareholders' equity by $233.3 million.
The results of operations of Hussmann and Midas through the spin-off date
have been classified as discontinued operations. On a combined basis, they
previously had reported sales and revenues of $1,692.6 million in 1997 and
$1,609.9 million in 1996, which have now been excluded from Whitman's
consolidated sales.
Whitman's consolidated statements of income included after tax income
(loss) from discontinued operations of $(11.7) million in 1997 and $91.6 million
in 1996. Those amounts included the results of operations of Hussmann and Midas.
The 1997 after tax loss also included charges of $4.2 million relating to
settlements with the IRS for the years 1988 through 1991, which related to other
previously discontinued operations.
In the third and fourth quarters of 1997, Hussmann and Midas recorded
special charges of $123.9 million, or $93.4 million after tax. Detailed
information about the charges was included in the special information statement
that was provided to Whitman shareholders immediately prior to the spin-offs.
Hussmann and Midas retained the responsibility to carry out the programs covered
by their special charges, as well as the related balance sheet accruals.
Summarized information about the special charges and the effects of the IRS
settlements is contained in Note 2, Discontinued Operations, to the Consolidated
Financial Statements.
Year 2000 Readiness
The Year 2000 ("Y2K") issue relates to computer applications being designed
using only two digits, rather than four, to represent a year. As a result,
computer applications could fail or create erroneous results by recognizing "00"
as the year 1900 rather than the year 2000. The Company considers Y2K readiness
as the ability to manage and process date-related information without materially
abnormal or incorrect outcomes beyond January 1, 2000.
Beginning in 1997, the Company initiated a company-wide effort to address
the Y2K issues that affect its operations and to minimize service interruptions.
This effort consists of five phases: (1) inventory, (2) assessment, (3)
remediation, (4) testing and (5) developing contingency plans. The contingency
plans will include addressing issues associated with any non-compliant suppliers
and key customers in order to minimize the potential material adverse effects of
any Y2K problems. During 1998, the Company designated one of its senior managers
as its Vice President - Y2K Planning and Compliance. This position is
responsible for coordinating all facets of the Company's Y2K initiative,
including coordinating efforts and responsibilities between corporate
Information Technology ("IT") and non-IT personnel and local division management
to identify, evaluate and implement changes to centralized and non-centralized
computer systems, applications and equipment necessary to achieve Y2K readiness.
Local management has identified and evaluated major areas of potential business
impact, including critical suppliers and customers, to enable proper monitoring
of Y2K conversion efforts on a centralized basis.
In the first quarter of 1998, the Company began implementation of an
integrated enterprise-wide resource planning ("ERP") system. The ERP system will
address the Company's financial applications during the first phase of
implementation and address manufacturing systems during the second phase. The
ERP project was begun with the goal of expanding existing system capacity for
future growth and improving processing efficiencies, as well as addressing any
Y2K compliance issues associated with the Company's existing systems. The first
phase of the ERP implementation was implemented during January, 1999, except for
the asset management, accounts receivable and billing modules. The asset
management module will be implemented during the first quarter of 1999, while
the accounts receivable and billing modules will be implemented during the third
or fourth quarter of 1999. The Company is currently assessing and preparing its
existing accounts receivable and billing systems for Y2K compliance in the event
the accounts receivable and billing modules are not implemented until the year
2000. The remediation and testing phases for these existing systems are targeted
for completion in June, 1999. Phase two of the ERP project is expected to be
completed during the latter half of 1999 and first half of the Year 2000. The
stages of the second phase targeted for completion in the Year 2000 do not
involve any Y2K compliance issues. In conjunction with the implementation of the
ERP system, certain hardware and software components have been or will be
upgraded to expand existing capacity. Through January 2, 1999, costs incurred in
the ERP implementation totaled approximately $9.2 million. Implementation costs
for the entire ERP project currently are expected to be $25 million to $30
million. These costs have been, and will be, funded through operating cash
flows. A majority of the costs, as they relate to purchased hardware, software
and the implementation thereof, will be capitalized.
The Company has conducted an inventory of its IT systems and has corrected
substantially all of those critical-path systems that were found to have
date-related deficiencies, excluding the financial systems addressed by phase
one of the ERP implementation. In the case of non-IT systems (i.e., including
embedded chip technology), the Company conducted an inventory of its facilities
which was completed, for the most part, by the end of 1998. Correction of
date-deficient systems and equipment is occurring simultaneously with the
completion and evaluation of this inventory. The Company is also surveying
selected third parties, including its principal suppliers and customers, as well
as governmental entities, to determine the status of their Year 2000 compliance
programs.
The inventory, assessment, remediation and testing phases of the Y2K
project are in progress. As part of the Company's testing phase, it intends to
conduct verification testing of selected mainframe/network component upgrades
received from suppliers. In addition, selected critical components are scheduled
to undergo testing in a controlled environment that replicates the current
mainframe/network configuration to simulate the turn of the century and leap
year dates. In the event these efforts do not address all potential systems
problems, the Company is beginning the process of developing contingency plans
to ensure that it will be able to operate the critical areas of its business.
This process includes developing alternative plans to engage in business
activities with customers and suppliers should they or the Company not be Y2K
compliant, including resorting to paper records of certain transactions
presently handled electronically. The development of overall contingency plans
is expected to be finalized by the end of the first quarter of 1999, with
refinements occurring as needed thereafter. The ultimate execution of
contingency plans, if necessary, would be expected during the fourth quarter of
1999.
It is expected the Company's critical IT systems, except as specifically
noted elsewhere, will be Y2K compliant by the end of the first quarter of 1999
and the Company's non-IT systems and equipment will be compliant by June, 1999.
Compliance by the aforementioned target dates is subject to additional
evaluation, remediation and testing efforts. Incremental costs, over and above
the aforementioned ERP system project spending, related to the Y2K project are
being expensed as incurred and funded through operating cash flows. Through the
end of 1998, the Company had expensed approximately $0.6 million of such
incremental costs. Total incremental costs to ensure Y2K compliance are
estimated to be $2 million to $5 million, with the majority of the costs being
incurred in 1999. This expectation assumes that the Company will not be
obligated to incur significant Y2K-related costs on behalf of its customers or
suppliers. The projection of Y2K-related costs is based on numerous assumptions
and estimates; consequently, actual costs could be materially greater than
anticipated. Plans will continue to be monitored for completion. Incomplete or
untimely resolution of the Y2K issue by the Company, by critically important
suppliers and customers of the Company, or by governmental entities, could have
a materially adverse impact on the Company's business, operations or financial
condition in the future.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company is subject to various market risks, including risks from
changes in commodity prices, interest rates and currency exchange rates.
Commodity Prices
The risk from commodity price changes correlates to Pepsi General's ability
to recover higher product costs through price increases to customers, which may
be limited due to the competitive pricing environment that exists in the soft
drink business. The Company has generally not used commodity hedges to lock in
costs, but instead manages costs by entering into firm commitments for materials
used.
Interest Rates
During 1998, the risk from changes in interest rates was not material to
the Company's operations because a significant portion of the Company's debt
issues were fixed rate obligations. Substantially all of the Company's floating
rate exposure related to changes in the six month LIBOR rate. If the six month
LIBOR rate had changed by 50 basis points (0.5 percent), the Company's 1998
interest expense related to its floating rate obligations would have changed by
$0.1 million. Upon completing the transaction with PepsiCo, it is expected the
Company may be subject to additional floating rate interest exposure and may
manage those exposures using interest rate swaps. In 1998, the Company had
short-term investments throughout a majority of the year, principally invested
in money market funds and commercial paper, which were most closely tied to
three month Treasury-bill rates. Assuming a change of 50 basis points in the
rate of interest associated with the Company's short-term investments, interest
income would have changed by $0.7 million.
Currency Exchange Rates
Because the Company operates international franchise territories, it is
subject to exposure resulting from changes in currency exchange rates. Currency
exchange rates are established based on a variety of economic factors including
local inflation, growth, interest rates and governmental actions, as well as
other factors. The Company currently does not hedge the translation risks of
investments in its international operations. Any positive cash flows generated
have been reinvested in the operations, excluding repayments of loans from the
manufacturing joint venture in Poland.
Non-U.S. operations do not represent a significant portion of the Company's
total operations. In 1998, sales and identifiable assets for the combined
international operations were approximately 5% and 9%, respectively, of the
total reported amounts. Changes in currency exchange rates impact the
translation of the results of the international operations from their local
currencies into U.S. dollars. If the currency exchange rates had changed by 5%
in 1998, the impact on reported operating income would have been less than $1
million. The economy in Russia was considered highly inflationary for accounting
purposes with all transactions being recorded at historical costs in U.S.
dollars. All gains and losses in Russia from foreign exchange transactions are
included in the consolidated results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Information under Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and other information pertaining to the Company's directors
is set forth below:
HERBERT M. BAUM, President and Chief Operating Officer, Hasbro, Inc. (toy
manufacturing and marketing). Previously Chairman and Chief Executive Officer of
Quaker State Corporation. Director of the Company since 1995. Also a director of
Dial Corporation, Fleming Companies, Inc., Hasbro, Inc., Meredith Corporation
and Midas, Inc. Age 62.
BRUCE S. CHELBERG, Chairman and Chief Executive Officer of Whitman
Corporation. Director of the Company since 1988. Also a director of First
Midwest Bancorp, Inc., Northfield Laboratories Inc. and Snap-on Incorporated.
Age 64.
RICHARD G. CLINE, retired Chairman and Chief Executive Officer of Nicor
Inc. (natural gas distribution and containerized liner shipping). Director of
the Company since 1987. Also Chairman of the Board and director of Hussmann
International, Inc., a director of Kmart Corporation and Ryerson Tull, Inc., and
a trustee of Northern Institutional Funds. Age 64.
PIERRE S. du PONT, director in the law firm of Richards, Layton & Finger,
P.A. Director of the Company since 1990. Also trustee of The Northwestern Mutual
Life Insurance Company. Age 64.
ARCHIE R. DYKES, Chairman of Capital City Holdings Inc. (venture capital
organization). Director of the Company since 1985. Also a director of Fleming
Companies, Inc., Hussmann International, Inc., Midas, Inc. and the Employment
Corporation. Age 68.
CHARLES W. GAILLARD, President of General Mills, Inc. (food marketer and
distributor). Executive of General Mills since 1966. Director of the Company
since 1997. Also a director of General Mills, Inc. Age 58.
JAROBIN GILBERT, JR., President and Chief Executive Officer of DBSS Group,
Inc. (management, planning and international trade advisory firm). Director of
the Company since 1994. Also a director of Midas, Inc. and Venator Group, Inc.
Age 53.
VICTORIA B. JACKSON, Former President and Chief Executive Officer of
DSS/ProDiesel, Inc. (diesel parts remanufacturing and distribution company).
Director of the Company since 1994. Also a director of Hussmann International,
Inc., J. H. Heafner Company and AmSouth Bancorporation. Age 44.
CHARLES S. LOCKE, retired Chairman of the Board and Chief Executive
Officer, Morton International, Inc. (manufacturer of specialty chemicals and
salt). Director of the Company since 1991. Also a director of Nicor Inc. and
Cordant Technologies Inc. Age 70.
The executive officers of Whitman and their ages as of March 1, 1999 were
as follows:
Age Position
--- --------
Bruce S. Chelberg 64 Chairman and Chief Executive Officer
Frank T. Westover 60 Executive Vice President
Martin M. Ellen 45 Senior Vice President and Chief
Financial Officer
Lawrence J. Pilon 50 Senior Vice President-Administration
Charles H. Connolly 64 Senior Vice President-Corporate Affairs
and Investor Relations
William B. Moore 57 Senior Vice President, Secretary and
General Counsel
Larry D. Young 44 Corporate Vice President; Executive
Vice President and Chief Operating
Officer, Pepsi-Cola General Bottlers,
Inc.
<PAGE>
Except as described below, 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. Ellen joined Whitman Corporation as Senior Vice President and Chief
Financial Officer in October, 1998. Prior to joining Whitman, Mr. Ellen served
as a founding member of Casas, Ellen & White LLC, a venture management firm,
from May, 1998 through September, 1998; from October, 1996 through May, 1998 Mr.
Ellen served as Executive Vice President and Chief Financial Officer of
PrimeCare International Inc.; from August, 1994 through October, 1996 Mr. Ellen
served as Vice President-Finance for Caremark International, Inc.
Prior to his appointment as Senior Vice President - Administration, Mr.
Pilon served as Senior Vice President - Human Resources of the Company.
Mr. Young has been with the Company since 1982. He served as Vice President
and Managing Director of the Company's operations in Poland in 1996 and later
that year became President of Pepsi General's European Operations. He became
Executive Vice President and Chief Operating Officer of Pepsi General in 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers to file reports of holdings and transactions in the Company's
Common Stock with the Securities and Exchange Commission. Based upon Company
records and other information, the Company believes that all required reports
were timely filed in 1998, with the exception of one report relating to one
transaction by an officer, Lawrence J. Pilon, which was inadvertantly filed one
month late.
Item 11. EXECUTIVE COMPENSATION.
Compensation of Directors
Directors who are not employees of the Company receive an annual retainer
of $24,000, plus $1,000 for each meeting of the Board and each Board Committee
meeting attended. The Chairman of each Board Committee is paid an additional
$5,000 annual retainer. Non-employee directors also receive a supplemental
retainer consisting of 625 shares of the Company's Common Stock, plus the
equivalent fair market value of such shares in cash.
Summary Compensation Table
The table below shows annual and long term compensation for each of the
Company's five most highly compensated executive officers for services in all
capacities to the Company and its subsidiaries during 1996, 1997, and 1998.
Compensation, as reflected in this table and the tables on stock options which
follow, is presented on the basis of rules of the Securities and Exchange
Commission and does not, in the case of certain stock-based awards or accruals,
necessarily represent the amount of compensation realized or which may be
realized in the future.
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation ($)(a)
--------------------------------------------------- ------------------------- -------------------
Awards
-------------------------
Securities
Restricted Underlying
Name and Principal Other Annual Stock Options
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($)(b) (#)(c)
- ------------------ ---- ---------- --------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce S. Chelberg 1998 750,000 450,000 26,155 -- -- 1,348,732
Chairman and Chief 1997 725,000 280,000 28,894 716,875 215,563 113,906
Executive Officer 1996 679,167 417,000 23,635 881,225 235,812 119,174
Robert C. Cushing (d) 1998 366,667 225,000 13,148 -- 120,000 31,990
Corporate Vice President; 1997 270,900 80,000 11,699 242,813 73,024 26,609
President, Pepsi-Cola
General Bottlers, Inc.
Frank T. Westover 1998 306,000 146,000 10,063 -- -- 309,779
Executive Vice President 1997 296,667 66,000 8,609 159,563 47,832 42,857
1996 286,167 103,000 8,401 194,425 52,296 43,234
Larry D. Young (e) 1998 276,667 150,000 8,193 -- 90,000 23,307
Corporate Vice President;
Executive Vice President
and Chief Operating
Officer, Pepsi-Cola
General Bottlers, Inc.
Lawrence J. Pilon 1998 260,000 145,000 16,496 -- 100,000 848,077
Senior Vice President - 1997 254,167 66,000 13,066 159,563 47,832 35,506
Administration 1996 242,500 103,000 17,220 194,425 52,296 35,663
</TABLE>
(a) The amounts shown for All Other Compensation are amounts accrued under a
nonqualified retirement plan, together with (1) the values of premiums paid
by the Company for an executive split dollar life insurance program
established July 1, 1996, to replace benefits formerly provided under the
Company's group program, (2) cash payments in lieu of restricted stock
awards and stock options under the Company's long term compensation plan as
follows: Mr. Chelberg, $1,249,099; Mr. Westover, $275,618; and Mr. Pilon,
$275,618, and (3) in the case of Mr. Chelberg, premiums paid by the Company
for individual term insurance of $37,815 (1998), $34,135 (1997) and $30,895
(1996). Additionally, Mr. Pilon received a payment of $545,000 under the
terms of his Change in Control Agreement (see "Termination Benefits").
(b) The number of shares of restricted stock and the market value thereof held
by Messrs. Chelberg, Cushing, Westover, Young and Pilon at December 31,
1998, was as follows: Mr. Chelberg, 32,301 shares ($819,638); Mr. Cushing,
9,134 shares ($231,775); Mr. Westover, 7,167 shares ($181,863); Mr. Young,
2,600 shares ($65,975); and Mr. Pilon, 7,167 shares ($181,863). Dividend
equivalents were paid on restricted stock at the time in the same amounts
as dividends paid to all shareholders. All shares of restricted stock were
fully vested on January 1, 1999.
(c) As a result of the spin-offs of Hussmann and Midas on January 30, 1998, the
options then outstanding were modified to adjust the number of shares and
relevant exercise prices pursuant to an IRS formula.
(d) Mr. Cushing became President of Pepsi-Cola General Bottlers, Inc. in March,
1997. He resigned in February, 1999.
(e) Mr. Young became Executive Vice President and Chief Operating Officer of
Pepsi-Cola General Bottlers, Inc. in May, 1998.
Option/SAR Grants in 1998 Fiscal Year
Set forth below is information on stock options granted in the 1998 fiscal
year to the executive officers named in the Summary Compensation Table under the
Company's Revised Stock Incentive Plan. No SARs were granted.
<TABLE>
<CAPTION>
Potential Realizable Value At
Number of Percentage of Assumed Annual Rates of Stock
Securities Total Options Price Appreciation for Option
Underlying Granted to Exercise or Term (b)
Options Employees in Base Price Expiration -----------------------------
Name Granted (#)(a) 1998 ($/Sh) Date 5% ($) 10% ($)
---- -------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce S. Chelberg -- -- -- -- -- --
Robert C. Cushing 120,000 11.5 16.125 1/30/08 1,216,911 3,083,892
Frank T. Westover -- -- -- -- --
Larry D. Young 90,000 8.6 16.125 1/30/08 912,683 2,312,919
Lawrence J. Pilon 100,000 9.5 19.5313 4/30/08 1,228,313 3,112,786
</TABLE>
(a) All options were granted at a price equal to 100% of the fair market value
of the Company's Common Stock at date of each grant. Options become
exercisable as to one-third on the first anniversary of the date of grant,
two-thirds on the second anniversary, and in full on the third anniversary,
except that the option granted to Mr. Pilon is exercisable as to one-half
on June 30, 1999 and as to the remainder on June 30, 2000.
(b) The dollar amounts under these columns are the result of calculations at
the 5% and 10% assumed annual growth rates mandated by the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation, if any, in the Company's stock price. The calculations
were based on the Exercise Price per share and the 10-year term of the
options.
Aggregated Option/SAR Exercises in 1998 and Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options Held At In-the-Money Options At
Shares January 2, 1999 (#) January 2, 1999 ($)(a)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce S. Chelberg 365,436 4,809,669 443,509 222,313 5,585,458 2,314,550
Robert C. Cushing 15,147 175,801 62,181 182,980 665,973 1,776,948
Frank T. Westover 59,790 811,416 147,588 49,320 2,081,837 513,491
Larry D. Young -- -- 31,675 114,607 363,692 1,091,742
Lawrence J. Pilon 14,828 117,490 69,622 149,320 767,178 1,097,861
</TABLE>
(a) Based on the closing price of the Company's Common Stock ($25.375) on
December 31, 1998, as reported for New York Stock Exchange Composite
Transactions.
Pension Plans
The Company maintains qualified, defined benefit pension plans and
nonqualified retirement plans paying benefits in optional forms elected by the
employee based upon percentage multipliers which are applied to Covered
Compensation and Credited Service. The pension plans and related nonqualified
plans were amended effective January 1, 1992, to reinstate benefit accruals that
were frozen for most employees as of December 31, 1988, when the Company changed
its benefit plan structure. The revised benefit formulas provide a normal
retirement benefit of 1% of Covered Compensation for each year of Credited
Service (excluding 1989-1991), up to a maximum of 20 years. The changes also
include special minimum benefits based on Credited Service accrued through
December 31, 1988, and Covered Compensation at retirement. The following table
reflects future benefits, payable as life annuities upon retirement, in terms of
a range of amounts determined under the revised benefit formulas mentioned
above, at representative periods of Credited Service.
Projected Annual Pension
<TABLE>
<CAPTION>
Years of Credited Service (b)
--------------------------------------------------------------
Covered Compensation (a) 5 10 15 20 or more
------------------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C>
$400,000 $ 20,000 $ 40,000 $ 60,000 $ 80,000
$600,000 30,000 60,000 90,000 120,000
$800,000 40,000 80,000 120,000 160,000
$1,000,000 50,000 100,000 150,000 200,000
$1,200,000 60,000 120,000 180,000 240,000
</TABLE>
(a) Covered Compensation includes salary and bonus, as shown in the Summary
Compensation Table, averaged over the five consecutive years in which such
compensation is the highest.
(b) As of January 2, 1999, the executive officers named in the Summary
Compensation Table had the following years of Credited Service: Mr.
Chelberg, 14 years, Mr. Cushing, 12 years, Mr. Westover, 16 years, Mr.
Young, 14 years, and Mr. Pilon, 5 years.
Termination Benefits
In 1995, the Company entered into amended Change in Control Agreements (the
"Agreements"), with Messrs. Chelberg, Pilon, Westover and certain other
officers. The Agreements, originally adopted in 1985 and amended and updated
from time to time thereafter, were a result of a determination by the Board of
Directors that it was important and in the best interests of the Company and its
shareholders to ensure that, in the event of a possible change in control of the
Company, the stability and continuity of management would continue unimpaired,
free of the distractions incident to any such change in control. Revised forms
of Change in Control Agreements were entered into with Messrs. Cushing and Young
in 1997.
For purposes of the Agreements, a "change in control" includes (i) a
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other property, other
than a transaction in which the proportionate ownership of the common stock of
the Company and the surviving corporation remains substantially unchanged, (ii)
a shareholder approved plan or proposal for the liquidation of the Company,
(iii) the acquisition by any person of 25% or more of the Company's voting
securities, (iv) over a two-year period, persons who are directors of the
Company cease to constitute a majority of the Board, unless the new directors
were approved by a two-thirds vote of the continuing directors, or, for certain
officers, (v) the sale or other disposition of a majority of the stock or of all
or substantially all of the assets of a significant subsidiary of the Company in
one or more transactions. The spin-offs of Hussmann International, Inc. and
Midas, Inc. in January, 1998 constituted a change in control of the Company for
purposes of the Agreements held by Messrs. Chelberg, Pilon and Westover, but not
for purposes of the Agreements held by Messrs. Cushing and Young. As reflected
in the Summary Compensation Table, Mr. Pilon received a partial payment of the
compensation payable to him under the terms of his Agreement while agreeing to
remain with the Company for a transition period following the spin-offs.
Benefits are payable under the Agreements only if a change in control has
occurred and within three years thereafter the officer's employment is
terminated involuntarily without cause or voluntarily by the officer for reasons
such as demotion, relocation, loss of benefits or other changes. The principal
benefits to be provided to officers under the Agreements are (i) a lump sum
payment equal to three years' compensation (base salary and incentive
compensation), and (ii) continued participation in the Company's employee
benefit programs or equivalent benefits for three years following termination.
The Agreements provide that, if separation payments thereunder, either alone or
together with payments under any other plan of the Company, would constitute a
"parachute payment" as defined in the Federal Internal Revenue Code and subject
the officer to the excise tax imposed by Section 4999 of the Code, the Company
shall pay such tax and any taxes on such payment.
The Agreements are not employment agreements, and do not impair the right
of the Company to terminate the employment of the officer with or without cause
prior to a change in control, or, absent a potential or pending change in
control, the right of the officer to voluntarily terminate his employment. If
and when consummated, the proposed new business relationship with PepsiCo will
constitute a change in control of the Company for the purposes of the definition
set forth in the Agreement held by Mr. Young.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
As of March 11, 1999, no person was known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, except as set
forth below. The information below relating to Ariel Capital Management, Inc.
and FMR Corp. is based upon statements on Schedule 13G filed with the Securities
and Exchange Commission, reflecting their respective shareholdings as of
December 31, 1998. The information below relating to GAMCO Investors, Inc. et
al. is based upon a statement on Schedule 13D filed with the Securities and
Exchange Commission and dated February 27, 1998.
Number of Shares
and Nature of Percent
Name and Address Beneficial Ownership of Class
- ---------------- -------------------- --------
Ariel Capital Management, Inc.
307 North Michigan Avenue
Chicago, Illinois 60601 5,297,985 5.25%
FMR Corp. (a)
82 Devonshire Street
Boston, Massachusetts 02109 7,731,820 7.66%
GAMCO Investors, Inc. (b)
Gabelli Funds, Inc.
Gemini Capital Management Ltd.
Gabelli International Limited
One Corporate Center
Rye, New York 10580 5,536,020 5.45%
(a) Through its subsidiaries, Fidelity Management and Research Company and
Fidelity Management Trust Company, FMR Corp. had sole voting power as to
173,600 shares, no voting power as to the remainder of such shares, and
sole dispositive power as to all 7,731,820 shares held by it.
(b) Mario J. Gabelli acts as chief investment officer for these entities or
directly or indirectly controls them. Such entities have sole voting power
and sole dispositive power with respect to the following shares of the
Company's Common Stock, respectively: GAMCO Investors, Inc., 3,773,320 and
3,891,020; Gabelli Funds, Inc., 1,574,000 and 1,574,000; Gemini Capital
Management Ltd., 5,000 and 5,000; and Gabelli International Limited, 66,000
and 66,000.
Securities Ownership of Directors and Executive Officers
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of March 11, 1999, by each director of the Company,
by each executive officer named below, and by all directors and executive
officers as a group.
Amount and Nature
of Beneficial Percent
Name or Identity of Group Ownership of Class
- ------------------------- ----------------- --------
Herbert M. Baum 3,375 *
Bruce S. Chelberg 873,286 *
Richard G. Cline 6,625 *
Pierre S. du Pont 4,175 *
Archie R. Dykes 6,955 *
Charles W. Gaillard 2,875 *
Jarobin Gilbert, Jr. 2,175 *
Victoria B. Jackson 2,975 *
Charles S. Locke 4,875 *
Frank T. Westover 254,024 *
Larry D. Young 91,132 *
Lawrence J. Pilon 116,125 *
All Directors and Executive
Officers as a Group (15 persons) 1,624,233 1.78%
* Less than 1%.
(a) Includes shares which the named director or executive officer has the right
to acquire within 60 days after March 11, 1999, through exercise of stock
options, as follows: Mr. Chelberg, 593,968 shares; Mr. Westover, 180,964
shares; Mr. Young, 77,247 shares; and Mr. Pilon, 102,998 shares. The number
of shares subject to options to purchase the Company's Common Stock held by
all officers and employees of the Company were adjusted following the
spin-offs of Hussmann International, Inc. and Midas, Inc. on January 30,
1998, in accordance with an Internal Revenue Code formula.
(b) The number of shares of Common Stock shown as beneficially owned include
1,162,769 shares which directors and executive officers have the right to
acquire within 60 days following March 11, 1999 through the exercise of
stock options and 10,840 shares representing the vested beneficial interest
of such persons under the Company's Retirement Savings Plan.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
<PAGE>
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 January 2, 1999, 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, 1998.
<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 31st day of
March, 1999.
WHITMAN CORPORATION
By: /s/ MARTIN M. ELLEN
-----------------------
Martin M. Ellen
Senior Vice President and Chief Financial Officer
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 31st day of March, 1999.
Signature Title
* Bruce S. Chelberg Chairman and Chief
----------------------- Executive Officer and Director
BRUCE S. CHELBERG (principal executive officer)
/s/ Martin M. Ellen Senior Vice President and Chief Financial Officer
----------------------- (principal financial and accounting officer)
MARTIN M. ELLEN
* Herbert M. Baum Director
-----------------------
HERBERT M. BAUM
* Richard G. Cline Director *By: /s/ MARTIN M. ELLEN
----------------------- -------------------
RICHARD G. CLINE Martin M. Ellen
Attorney-in-Fact
* Pierre S. duPont Director March 31, 1999
-----------------------
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.
----------------------- Director
VICTORIA B. JACKSON
* 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 JANUARY 2, 1999
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Statement of Financial Responsibility
Independent Auditors' Report
Consolidated Statements of Income for the fiscal years 1998, 1997 and 1996
Consolidated Balance Sheets as of fiscal year end 1998 and 1997
Consolidated Statements of Cash Flows for the fiscal years 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the fiscal years 1998, 1997
and 1996
Notes to Consolidated Financial Statements
Pro Forma Combined Financial Information (unaudited)
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 made 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 auditors 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 program of internal audit and the careful selection and
training of its financial staff.
The Company's independent auditors, KPMG 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 appears on the following page.
<PAGE>
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 the end of fiscal years 1998 and 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the fiscal years 1998, 1997 and 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 as of the end of fiscal years 1998 and 1997, and
the results of their operations and their cash flows for each of the fiscal
years 1998, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
January 25, 1999
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except for per share data)
<TABLE>
<CAPTION>
Fiscal years 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 1,635.0 $ 1,557.5 $ 1,501.4
Cost of goods sold 1,024.5 972.6 924.4
----------- ----------- -----------
Gross profit 610.5 584.9 577.0
Selling, general and administrative expenses 391.1 389.7 366.8
Amortization expense 15.6 15.7 15.4
Special charges (Note 4) -- 49.3 --
----------- ----------- -----------
Operating income 203.8 130.2 194.8
Interest expense, net (Note 5) (36.1) (42.3) (41.5)
Other expense, net (15.5) (18.0) (25.6)
----------- ----------- -----------
Income before income taxes 152.2 69.9 127.7
Income taxes (Note 6) 69.7 37.9 61.1
----------- ----------- -----------
Income from continuing operations before minority interest 82.5 32.0 66.6
Minority interest 20.0 16.2 18.8
----------- ----------- -----------
Income from continuing operations 62.5 15.8 47.8
Income (loss) from discontinued operations after taxes (Note 2) (0.5) (11.7) 91.6
Extraordinary loss on early extinguishment of debt after taxes (Note 3) (18.3) -- --
----------- ----------- -----------
Net income $ 43.7 $ 4.1 $ 139.4
=========== =========== ===========
Weighted average common shares:
Basic 101.1 101.6 104.8
Incremental effect of stock options 1.8 1.3 1.2
----------- ----------- -----------
Diluted 102.9 102.9 106.0
=========== =========== ===========
Income (loss) per share - basic:
Continuing operations $ 0.62 $ 0.16 $ 0.46
Discontinued operations (0.01) (0.12) 0.87
Extraordinary loss on early extinguishment of debt (0.18) -- --
----------- ----------- -----------
Net income $ 0.43 $ 0.04 $ 1.33
=========== =========== ===========
Income (loss) per share- diluted:
Continuing operations $ 0.61 $ 0.15 $ 0.45
Discontinued operations (0.01) (0.11) 0.87
Extraordinary loss on early extinguishment of debt (0.18) -- --
----------- ----------- -----------
Net income $ 0.42 $ 0.04 $ 1.32
=========== =========== ===========
Cash dividends per share $ 0.20 $ 0.45 $ 0.41
=========== =========== ===========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
As of fiscal year end 1998 1997
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 147.6 $ 52.4
Receivables, net of allowance of $3.2 million
in 1998 and $3.4 million in 1997 170.7 131.7
Inventories:
Raw materials and supplies 38.3 28.1
Finished goods 41.7 41.8
----------- -----------
Total inventories 80.0 69.9
Other current assets 30.8 36.3
Net current assets of companies held for disposition -- 270.5
----------- -----------
Total current assets 429.1 560.8
----------- -----------
Investments 160.0 157.0
Property (at cost):
Land 22.0 14.9
Buildings and improvements 183.3 161.3
Machinery and equipment 801.2 702.0
----------- -----------
Total property 1,006.5 878.2
Accumulated depreciation and amortization (507.2) (471.6)
----------- -----------
Net property 499.3 406.6
----------- -----------
Intangible assets, net of accumulated amortization of $155.5 million in 1998
and $140.8 million in 1997 447.0 462.6
Other assets 33.9 49.5
Net non-current assets of companies held for disposition -- 393.2
----------- -----------
Total assets $ 1,569.3 $ 2,029.7
=========== ===========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
As of fiscal year end 1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt $ -- $ 282.5
Accounts and dividends payable 138.3 97.8
Income taxes payable 6.9 2.9
Accrued expenses:
Salaries and wages 22.1 16.1
Interest 15.1 20.7
Other 50.8 70.0
----------- -----------
Total current liabilities 233.2 490.0
----------- -----------
Long-term debt 603.6 604.7
Deferred income taxes 99.1 75.4
Other liabilities 73.3 98.4
Minority interest 233.7 221.5
Shareholders' equity:
Common stock (without par, 250.0 million shares authorized; 113.3 million issued
at January 2, 1999 and 111.7 million issued at December 31, 1997) 499.8 478.2
Retained income 94.3 363.4
Accumulated other comprehensive loss:
Cumulative translation adjustment (12.0) (78.8)
Unrealized investment gain 3.4 0.2
----------- -----------
Accumulated other comprehensive loss (8.6) (78.6)
----------- -----------
Treasury stock (12.3 million shares at January 2, 1999 and 10.6 million shares at
December 31, 1997) (259.1) (223.3)
----------- -----------
Total shareholders' equity 326.4 539.7
----------- -----------
Total liabilities and shareholders' equity $ 1,569.3 $ 2,029.7
=========== ===========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Fiscal years 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 62.5 $ 15.8 $ 47.8
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 77.7 73.8 75.2
Deferred income taxes 23.7 9.2 8.4
Special charges -- 49.3 --
Cash outlays related to 1997 special charges (24.4) (2.4) --
Other 13.4 16.5 25.3
Changes in assets and liabilities, exclusive of acquisitions:
(Increase) decrease in receivables (39.0) (5.8) 2.4
(Increase) decrease in inventories (10.1) (2.4) 1.8
Increase (decrease) in payables 40.5 (5.6) 1.8
Net change in other assets and liabilities 25.5 4.5 (16.8)
----------- ----------- -----------
Net cash provided by continuing operations 169.8 152.9 145.9
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from and settlement of intercompany indebtedness with
Hussmann and Midas prior to spin-offs 434.3 -- --
Capital investments (159.1) (83.4) (87.2)
Proceeds from sales of property 3.7 1.9 1.6
Companies acquired, net of cash acquired -- (20.2) --
Cash from (investments in) joint ventures 3.7 (2.2) (30.8)
Purchases of investments (18.2) (38.8) (92.1)
Proceeds from sales of investments 19.4 57.1 176.1
----------- ----------- -----------
Net cash provided by (used in) investing activities 283.8 (85.6) (32.4)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of bank lines of credit and commercial paper (1.5) -- (15.0)
Proceeds from issuance of long-term debt -- 75.0 124.2
Repayment of long-term debt (311.2) (95.5) (101.0)
Issuance of common stock 21.4 11.8 14.6
Treasury stock purchases (37.7) (82.1) (93.2)
Cash dividends (20.2) (45.6) (42.9)
----------- ----------- -----------
Net cash used in financing activities (349.2) (136.4) (113.3)
----------- ----------- -----------
Net cash (used in) provided by discontinued operations (8.7) 117.3 (8.7)
Effects of exchange rate changes on cash and equivalents (0.5) (0.5) (0.3)
----------- ----------- -----------
Change in cash and equivalents 95.2 47.7 (8.8)
Cash and equivalents at beginning of year 52.4 4.7 13.5
----------- ----------- -----------
Cash and equivalents at end of year $ 147.6 $ 52.4 $ 4.7
=========== =========== ===========
</TABLE>
The following notes are an integral part of these statements.
<PAGE>
Whitman Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(dollars in millions)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Treasury Stock Total
--------------------------- Retained Comprehensive ------------------------ Shareholders'
Shares Amount Income Loss Shares Amount Equity
----------- --------- --------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of fiscal year end 1995 109,199,834 $ 427.8 $ 311.9 $ (45.9) (4,000,906) $ (66.0) $ 627.8
----------- --------- --------- ----------- ------------ -------- ---------
Comprehensive Income:
Net income 139.4 139.4
Other comprehensive loss:
Translation adjustments (2.2) (2.2)
Unrealized investment loss
(net of tax benefit of
$4.3 million) (7.9) (7.9)
---------
Other comprehensive loss (10.1)
---------
Comprehensive income 129.3
---------
Treasury stock purchases (3,989,894) (93.2) (93.2)
Stock compensation plans 1,395,959 28.5 (6.4) (29,188) (1.2) 20.9
Common stock issued for
acquisitions 11,614 0.3 0.3
Dividends declared (42.9) (42.9)
----------- --------- --------- ----------- ----------- --------- ---------
As of fiscal year end 1996 110,595,793 456.3 402.0 (56.0) (8,008,374) (160.1) 642.2
----------- --------- --------- ----------- ------------ --------- ---------
Comprehensive loss:
Net income 4.1 4.1
Other comprehensive loss:
Translation adjustments (21.0) (21.0)
Unrealized investment loss
(net of tax benefit of
$0.9 million) (1.6) (1.6)
---------
Other comprehensive loss (22.6)
---------
Comprehensive loss (18.5)
---------
Treasury stock purchases (3,323,200) (82.1) (82.1)
Stock compensation plans 1,123,903 21.9 2.9 (63,743) (1.5) 23.3
Common stock issued for
outstanding Pepsi General
non-voting preferred stock
(Note 13) 794,115 20.4 20.4
Dividends declared (45.6) (45.6)
----------- --------- --------- ----------- ----------- --------- ---------
As of fiscal year end 1997 111,719,696 478.2 363.4 (78.6) (10,601,202) (223.3) 539.7
----------- --------- --------- ----------- ----------- --------- ---------
Comprehensive income:
Net income 43.7 43.7
Other comprehensive income:
Translation adjustments 2.6 2.6
Unrealized investment gain
(net of tax expense of
$1.7 million) 3.2 3.2
---------
Other comprehensive income 5.8
---------
Comprehensive income 49.5
---------
Treasury stock purchases (1,969,849) (37.7) (37.7)
Stock compensation plans 1,555,134 23.9 2.6 290,635 1.9 28.4
Special dividend distribution of
Hussmann and Midas common stock (2.3) (295.2) 64.2 (233.3)
Dividends declared (20.2) (20.2)
----------- --------- --------- ----------- ----------- --------- ---------
As of fiscal year end 1998 113,274,830 $ 499.8 $ 94.3 $ (8.6) (12,280,416) $ (259.1) $ 326.4
=========== ========= ========= =========== =========== ========= =========
</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 subsidiaries (the "Company"),
including its principal operating company, Pepsi-Cola General Bottlers, Inc. and
its subsidiaries ("Pepsi General"). The Company's financial statements have been
restated to classify the results of operations and net assets of Hussmann
International, Inc. ("Hussmann") and Midas, Inc. ("Midas") as discontinued
operations. Accordingly, all amounts included in the Notes to Consolidated
Financial Statements pertain to continuing operations except where otherwise
noted. See further discussion in Note 2 - "Discontinued Operations."
FISCAL YEAR. Effective for 1998, the Company has changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Saturday
closest to December 31. The Company's 1998 fiscal year commenced January 1, 1998
and ended January 2, 1999. Operations outside the United States are included in
the consolidated financial statements on the basis of fiscal years ending
October 31. This delay in reporting actual results allows those operations
adequate time to prepare financial statements necessary for both local statutory
requirements and on a basis consistent with U.S. generally accepted accounting
principles.
CASH AND EQUIVALENTS. Cash and 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 average method) or net realizable value.
INVESTMENTS. Investments include real estate held for sale, principally at
Illinois Center, a large single location. This mixed use development is 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. Investments also
include Pepsi General's minority interest in a manufacturing joint venture in
Poland. Also included are bank obligations and other miscellaneous investments.
PROPERTY. Depreciation is computed on the straight-line method. 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 are 2.5 percent to 6.7 percent for buildings and
improvements and 8 percent to 20 percent for machinery and equipment.
INTANGIBLE ASSETS. Intangible assets principally represent the excess of cost
over fair market values of net tangible and identifiable intangible assets of
acquired businesses. Also included in intangible assets are franchise rights and
non-compete agreements associated with acquired territories. Such amounts
generally are being amortized on straight-line bases over 40 years or over the
life of the agreement. Intangible assets associated with international
operations are not significant.
CARRYING VALUES OF LONG-LIVED ASSETS. The Company evaluates the carrying values
of its long-lived assets, including intangible assets, by reviewing undiscounted
cash flows by operating unit. Such evaluations are performed whenever events and
circumstances indicate that the carrying value of an asset may not be
recoverable. If the sum of the projected undiscounted cash flows over the
estimated remaining lives of the related assets does not exceed the carrying
value, the carrying value would be adjusted for the difference between the fair
value and the carrying value.
REVENUE RECOGNITION. Revenue is recognized when title to a product is
transferred to the customer.
BOTTLER INCENTIVES. PepsiCo and other brand owners, at their sole discretion,
provide Pepsi General with various forms of marketing support. This marketing
support is intended to cover a variety of programs and initiatives, including
direct marketplace support, capital equipment funding and shared media and
advertising support. Based on the objectives of the programs and initiatives,
marketing support is recorded as an adjustment to net sales or a reduction of
selling, general and administrative expenses. Direct marketplace support is
primarily funding by PepsiCo and other brand owners of sales discounts and
similar programs and is recorded as an adjustment to net sales. Capital
equipment funding is designed to support the purchase and placement of marketing
equipment and is recorded within selling, general and administrative expenses.
Shared media and advertising support is recorded as a reduction to advertising
and marketing expense within selling, general and administrative expenses. There
are no conditions or other requirements which could result in a repayment of
marketing support received.
ADVERTISING AND MARKETING COSTS. Pepsi General is involved in a variety of
programs to promote its products. Advertising and marketing expenses are
expensed in the year incurred. Certain advertising and marketing costs incurred
by the Company are reimbursed by PepsiCo in the form of marketing support. This
form of marketing support is recorded as a reduction in advertising and
marketing expenses. Advertising and marketing expenses, net of support, were
$24.2 million, $23.3 million and $25.0 million in 1998, 1997 and 1996,
respectively.
STOCK-BASED COMPENSATION. The Company uses the intrinsic value method of
accounting for its stock-based compensation arrangements.
INCOME (LOSS) PER SHARE. Basic earnings per share are based upon the
weighted-average number of common shares outstanding. Diluted earnings per share
assume the exercise of all options which are dilutive, whether exercisable or
not. The dilutive effects of stock options are measured under the treasury stock
method.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to the current year presentation.
2. DISCONTINUED OPERATIONS
On January 30, 1998, the Company established Hussmann and Midas as
independent publicly-held companies through tax-free distributions (spin-offs)
to Whitman shareholders. Prior to the spin-offs, Hussmann and Midas paid Whitman
$240.0 million and $194.3 million, respectively, to settle intercompany
indebtedness and to pay special dividends. The spin-offs resulted in a reduction
of shareholders' equity of $233.3 million.
Combined financial information for discontinued operations in 1998 through
the date of the spin-offs and for the years ended December 31, 1997 and 1996 is
shown below (in millions):
1998 1997 1996
--------- --------- ---------
Sales and revenues of Hussmann and Midas $ 109.6 $ 1,692.6 $ 1,609.9
========= ========= =========
Income (loss) from discontinued operations:
Hussmann and Midas $ (0.5) $ (7.5) $ 91.6
Previously discontinued operations -- (4.2) --
--------- --------- ---------
Income (loss) from discontinued operations $ 0.5 $ (11.7) $ 91.6
========= ========= =========
Included in the 1997 income (loss) from discontinued operations for
Hussmann and Midas were special charges of $123.9 million, or $93.4 million
after tax. The special charges at Hussmann primarily related to the write-off of
goodwill in its U.K. operations ($26.0 million), a restructuring of the U.K.
operations ($23.2 million) and a reorganization of certain manufacturing
operations in the U.S ($7.1 million). The special charges at Midas principally
related to its decision to franchise or close substantially all company-operated
stores in the U.S. ($35.5 million), to record one-time charges for a special
product return program and changes in the U.S. franchisee advertising program
($12.2 million), to record severance benefits ($7.4 million) and to reflect the
impairment of certain assets ($12.5 million).
The results of tax settlements with the IRS in 1997 for the years 1988
through 1991, which related to other previously discontinued operations,
amounted to net additional tax expense of $2.9 million, which was recorded in
the third quarter of 1997. During the fourth quarter of 1997, the Company
recorded $1.3 million of additional tax expense resulting from the refinement of
deferred tax balances related to other previously discontinued operations.
Results from discontinued operations were reported net of income taxes of
$0.1 million, $39.1 million and $56.1 million in 1998, 1997 and 1996,
respectively.
3. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In January, 1998, Whitman made a tender offer for any and all of its
outstanding 7.625% and 8.25% notes maturing June 15, 2015, and February 15,
2007, respectively. In connection with the tender offer, Whitman repurchased
7.625% and 8.25% notes with principal amounts of $91.0 million and $88.5
million, respectively. The Company paid total premiums in connection with the
tender offer of $26.4 million and the remaining unamortized discount and issue
costs related to repurchased notes were $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. Costs associated with these
repayments and the remaining unamortized issue costs were not significant. The
Company recorded an extraordinary charge of $18.3 million, net of income tax
benefits of $10.4 million, in the first quarter of 1998 related to these early
extinguishments of debt.
4. SPECIAL CHARGES
In the third and fourth quarters of 1997, the Company recorded special
charges totaling $49.3 million. Pepsi General recorded special charges of $14.8
million to consolidate the number of its domestic divisions, including
reductions in staffing levels, and to write-down certain assets in its domestic
and foreign operations. Special charges of $34.5 million were recorded for the
Whitman corporate office, principally relating to the severance of essentially
all of the Whitman corporate management and staff and for expenses associated
with the spin-offs.
The following table summarizes the accrued liabilities associated with
special charges recorded during 1997, expenditures and asset writedowns through
January 2, 1999, and the remaining accrued liabilities at December 31, 1997 and
January 2, 1999 (in millions):
<TABLE>
<CAPTION>
Pepsi Whitman
Special charges: General Corporate Total
- ---------------- ----------- ----------- -----------
<S> <C> <C> <C>
Employee related costs $ 9.1 $ 27.0 $ 36.1
Asset writedowns 4.7 0.7 5.4
Spin-off related costs and other 1.0 6.8 7.8
----------- ----------- ----------
Total 14.8 34.5 49.3
----------- ----------- ----------
Expenditures and asset writedowns:
Employee related costs (0.9) (2.6) (3.5)
Asset writedowns (4.7) (0.7) (5.4)
Spin-off related costs and other -- (1.5) (1.5)
----------- ----------- ----------
Total (5.6) (4.8) (10.4)
----------- ----------- ----------
Accrued liabilities at December 31, 1997 9.2 29.7 38.9
----------- ----------- ----------
Expenditures:
Employee related costs (6.7) (11.4) (18.1)
Spin-off related costs and other (1.0) (5.3) (6.3)
----------- ----------- ----------
Total (7.7) (16.7) (24.4)
----------- ----------- ----------
Accrued liabilities at January 2, 1999 $ 1.5 $ 13.0 $ 14.5
=========== =========== ===========
</TABLE>
Employee related costs include severance payments for the management and
staff affected by the changes in the organizational structure, as well as other
headcount reduction programs. Employee related costs also include non-cash
compensation related to previously granted stock awards to key management, which
have been fully vested. The total number of employees affected was approximately
125 at Pepsi General and essentially all employees at Whitman Corporate.
Approximately 150 positions have been eliminated by reason of these programs.
The accrued liabilities at January 2, 1999 are comprised of deferred
severance payments and certain employee benefits. Substantially all of the
amounts accrued are expected to be paid in 1999 and are classified as other
current liabilities.
5. INTEREST EXPENSE, NET
Interest expense, net, consisted of the following (in millions):
1998 1997 1996
-------- -------- --------
Interest expense $ (46.4) $ (69.0) $ (68.2)
Interest income from Hussmann and Midas 1.6 23.1 23.7
Other interest income 8.7 3.6 3.0
-------- -------- --------
Interest expense, net $ (36.1) $ (42.3) $ (41.5)
======== ======== ========
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.
The loans and advances to Hussmann and Midas were repaid to Whitman prior
to the spin-offs of Hussmann and Midas on January 30, 1998. See Note 2 -
"Discontinued Operations."
6. INCOME TAXES
Income taxes consisted of the following:
(in millions) 1998 1997 1996
-------- -------- --------
Current:
Federal $ 38.2 $ 33.3 $ 39.0
Non-U.S. -- -- --
State and local 7.3 7.2 8.3
-------- -------- --------
Total current 45.5 40.5 47.3
-------- -------- --------
Deferred:
Federal 22.0 (3.2) 12.8
Non-U.S. (0.6) (0.7) (0.3)
State and local 2.8 1.3 1.3
-------- -------- --------
Total deferred 24.2 (2.6) 13.8
-------- -------- --------
Total income taxes $ 69.7 $ 37.9 $ 61.1
======== ======== ========
The items which gave rise to differences between income taxes in the
Consolidated Statements of Income and income taxes computed at the U.S.
statutory rate are summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
(dollars in millions) Amount % Amount % Amount %
- --------------------- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at the U.S. statutory rate $ 53.3 35.0 $ 24.5 35.0 $ 44.7 35.0
State income taxes, net of federal income tax benefit 6.6 4.3 5.6 8.0 6.2 4.9
Non-U.S. losses with no foreign tax benefits 6.6 4.3 6.5 9.3 7.2 5.6
Non-deductible portion of amortization-intangible assets 4.4 2.9 4.3 6.2 4.5 3.5
Other items, net (1.2) (0.7) (3.0) (4.3) (1.5) (1.2)
-------- ----- -------- ----- -------- ------
Income taxes $ 69.7 45.8 $ 37.9 54.2 $ 61.1 47.8
======== ===== ======== ===== ======== ======
</TABLE>
In 1998 and 1997, the Company settled Federal income tax audits with the
IRS for the year 1992 and the years 1988 through 1991, respectively. Accruals no
longer required were credited to income and are reflected in "other items, net"
in the table above.
Deferred income taxes are attributable to "temporary differences" which
exist between the financial statement bases and tax bases of certain assets and
liabilities and to net operating loss carryforwards. At January 2, 1999 and
December 31, 1997, deferred income taxes are attributable to:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- ------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Provision for special charges and previously sold businesses $ 13.5 $ 21.5
Non-U.S. net operating loss carryforwards 14.7 18.8
Lease transactions 13.0 14.1
Unrealized losses on investments 6.6 8.3
Pension and postretirement benefits 6.2 6.2
Deferred compensation 4.8 4.5
Other 12.7 10.9
-------- --------
Gross deferred tax assets 71.5 84.3
Valuation allowance - Non-U.S. net operating loss carryforwards (13.2) (17.8)
-------- --------
Net deferred tax assets $ 58.3 $ 66.5
-------- --------
Deferred tax liabilities:
Property, plant and equipment $ (67.3) $ (63.4)
Non-U.S. branch activity (30.4) (20.6)
Intangible assets (9.2) (8.4)
Deferred state taxes (8.4) (6.2)
Other (29.3) (26.7)
-------- --------
Total deferred tax liabilities $ (144.6) $ (125.3)
-------- --------
Net deferred tax liability $ (86.3) $ (58.8)
======== ========
Net deferred tax asset (liability) included in:
Other current assets $ 12.8 $ 16.6
Deferred income taxes (99.1) (75.4)
-------- --------
Net deferred tax liability $ (86.3) $ (58.8)
======== ========
</TABLE>
There currently is no undistributed non-U.S. income because Pepsi General's
international operations have generated pretax losses since they began
operations. Pretax losses from international operations were $20.6 million,
$20.4 million and $21.3 million in 1998, 1997 and 1996, respectively. At January
2, 1999, estimated potential future non-U.S. income tax benefits of net
operating losses were $14.7 million, for which a valuation allowance of $13.2
million has been provided. This valuation allowance reflects the uncertainty of
the Company's ability to fully utilize these benefits given the limited
carryforward periods permitted by the non-U.S. taxing jurisdictions. The change
in the valuation allowance of $4.6 million during 1998 principally reflects the
expiration of certain net operating losses and changes in non-U.S. tax rates,
offset by allowances provided on international losses incurred during 1998.
7. DEBT
Debt at January 2, 1999 and December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1998 1997
---------- ----------
<S> <C> <C>
6.25% to 6.90% notes due 2000 and 2005 $ 136.5 $ 136.5
7.5% notes due 2003 125.0 125.0
7.29% and 7.44% notes due 2026 ($100 million and $25 million due 2004 and 2008,
respectively, at option of note holder) 125.0 125.0
6.5% notes due 2006 100.0 100.0
7.625% notes due 2015 9.0 100.0
8.25% notes due 2007 11.5 100.0
7.5% notes due 2001 75.0 75.0
Notes due 2002, effective interest rate 6.2% -- 50.0
Term loan and note due 1998 through 1999, effective interest rates 6.5% to 6.9% -- 50.0
Russian revolving credit borrowings, effective interest rate 6.3% 23.5 25.0
Various other debt 0.1 5.1
---------- ----------
Total debt 605.6 891.6
Less: Amount classified as short-term debt -- 282.5
Unamortized discount 2.0 4.4
---------- ----------
Total long-term debt $ 603.6 $ 604.7
========== ==========
</TABLE>
The Company maintains a $200 million commercial paper program and also has
$300 million available under a contractual revolving credit facility for
necessary borrowings or as backup lines for the Company's commercial paper
program. The interest rates on the revolving credit facility, expiring in 2000,
are based primarily on the London Interbank Offered Rate ("LIBOR"). There were
no borrowings under the revolving credit facility at either January 2, 1999 or
December 31, 1997. Fees payable on the unused portion of such commitments were
not material.
Pepsi General, in connection with its Russian operations, has a contractual
revolving credit facility which permits it to borrow up to $35 million. Each
borrowing under the facility has an initial expiration of up to 360 days.
Interest rates on the facility are floating, based on LIBOR. Borrowings under
the facility totaled $23.5 million at January 2, 1999, and are expected to be
renewed when they expire.
During January, 1998, the Company extinguished certain indebtedness. See
Note 3 - "Extraordinary Loss on Early Extinguishment of Debt."
The amounts of long-term debt are scheduled to mature as follows:
Amount
Year (in millions)
---- -------------
2000 $ 75.5
2001 $ 75.0
2002 --
2003 $ 125.0
The Company has pledged certain buildings as collateral for various
long-term loan agreements. The net book value of such assets was not material at
January 2, 1999. Certain of the Company's financing arrangements contain a
restriction requiring the maintenance of a specific financial ratio related to
interest coverage. The Company is in compliance with this debt covenant.
8. FINANCIAL INSTRUMENTS
The Company has used derivative financial instruments to manage its
interest rate risk. Interest rate swap transactions generally involve the
exchange of fixed and floating rate interest payment obligations with commercial
and investment banks without the exchange of the underlying notional amounts.
The notional amounts related to the Company's interest rate swap
transactions were $40 million as of December 31, 1996. The contracts underlying
these transactions expired during 1997. No such transactions were entered into
during 1998.
At January 2, 1999, the Company had $23.5 million in floating rate debt
exposure. Substantially all of the floating rate exposure is related to six
month LIBOR rates. If the six month LIBOR rates changed by 50 basis points (0.50
percent), the Company's 1998 interest expense related to the floating rate debt
outstanding during 1998 would have changed by $0.1 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 fair market value of the Company's floating rate debt as of January 2,
1999 approximated its carrying value. The Company's fixed rate debt had a
carrying value of $580.0 million and an estimated fair market value of $603.6
million at January 2, 1999. 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.
9. 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 1998, 1997 and 1996 included the following
components:
(in millions) 1998 1997 1996
------- ------- -------
Service cost $ 3.5 $ 3.4 $ 3.3
Interest Cost 6.6 6.5 6.1
Expected return on plan assets (8.0) (7.2) (6.6)
Amortization of actuarial loss (0.3) 0.1 0.1
Amortization of transition asset (0.2) (0.2) (0.2)
Amortization of prior service cost 0.9 0.8 0.8
------- ------- -------
Net periodic pension cost $ 2.5 $ 3.4 $ 3.5
======= ======= =======
The following tables outline the changes in benefit obligations and fair
values of plan assets for the Company's pension plans and reconciles the pension
plans' funded status to the amounts recognized in the Company's balance sheets
as of January 2, 1999 and December 31, 1997:
(in millions) 1998 1997
-------- --------
Benefit obligation at beginning of year $ 98.5 $ 86.4
Service cost 3.5 3.4
Interest cost 6.6 6.5
Amendments 0.1 0.1
Actuarial loss 3.7 5.7
Plan merger -- 1.2
Benefits paid (6.1) (4.8)
-------- --------
Benefit obligation at end of year $ 106.3 $ 98.5
======== ========
Fair value of plan assets at beginning of year $ 103.0 $ 83.7
Actual return on plan assets 3.3 21.8
Plan merger -- 1.0
Employer contributions 1.7 1.3
Benefits paid (6.1) (4.8)
-------- --------
Fair value of plan assets at end of year $ 101.9 $ 103.0
======== ========
Funded status $ (4.4) $ 4.5
Unrecognized net actuarial loss (0.4) (9.1)
Unrecognized prior service cost 4.2 4.9
Unrecognized transition asset (0.6) (0.8)
-------- --------
Net amount recognized $ (1.2) $ (0.5)
======== ========
Net amounts recognized in the balance sheets consist of:
(in millions) 1998 1997
-------- --------
Prepaid pension cost $ 2.4 $ 2.7
Accrued pension liability (6.1) (3.7)
Intangible asset 2.5 0.5
-------- --------
Net amount recognized $ (1.2) $ (0.5)
======== ========
The Company uses September 30 as the measurement date for plan assets and
obligations. 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 and benefit obligations were as
follows:
Net periodic pension cost: 1998 1997 1996
---- ---- ----
Discount rates 7.0% 7.5% 7.5%
Expected long-term rates of return on assets 9.5% 9.5% 9.5%
Rates of increase in future compensation levels 4.5% 5.0% 5.0%
Benefit obligation: 1998 1997
---- ----
Discount rates 6.5% 7.0%
Rates of increase in future compensation levels 4.0% 4.5%
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $29.4 million, $27.5 million and $22.2 million as
of January 2, 1999 and $5.2 million, $3.5 million and zero as of December 31,
1997.
Company-sponsored defined contribution plans. Substantially all U.S. salaried
employees and certain U.S. hourly employees participate in voluntary,
contributory defined contribution plans to which the Company makes partial
matching contributions. Company contributions to these plans amounted to $5.1
million, $5.6 million and $5.5 million in 1998, 1997 and 1996, respectively.
Multi-employer pension plans. The Company's subsidiaries participate in a number
of multi-employer pension plans, which provide benefits to certain union
employee groups of the Company. Amounts contributed to the plans totaled $3.1
million, $2.8 million and $2.5 million in 1998, 1997 and 1996, respectively.
Post-retirement benefits other than pensions. The Company provides substantially
all former U.S. salaried employees who retired prior to July 1, 1989 and certain
other employees in the U.S. 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 insured plans generally are
financed by monthly insurance premiums and are based upon the prior year's
experience. Benefits paid from the 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.
Net periodic cost of post-retirement benefits other than pensions for 1998,
1997 and 1996 amounted to $0.1 million, $0.2 million and $0.4 million,
respectively. The Company's post-retirement life and health benefits are not
funded. The unfunded accrued post-retirement benefits amounted to $15.3 million
at January 2, 1999, and $15.7 million at December 31, 1997.
Multi-employer post-retirement medical and life insurance. The Company's
subsidiaries participate in a number of multi-employer plans which provide
health care and survivor benefits to union employees during their working lives
and after retirement. Portions of the benefit contributions, which cannot be
disaggregated, related to post-retirement benefits for plan participants. Total
amounts charged against income and contributed to the plans (including benefit
coverage during their working lives) amounted to $5.1 million, $4.0 million and
$3.7 million in 1998, 1997 and 1996, respectively.
10. LEASES
At January 2, 1999, annual minimum rental payments required under operating
leases that have initial noncancelable terms in excess of one year were $10.4
million, $9.0 million, $6.3 million, $2.6 million, $1.4 million and $0.7 million
in 1999, 2000, 2001, 2002, 2003 and thereafter, respectively.
Total rent expense applicable to operating leases amounted to $15.3
million, $14.7 million and $14.1 million in 1998, 1997 and 1996, respectively. A
majority of the Company's leases provide that the Company pays taxes,
maintenance, insurance and certain other operating expenses.
11. 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. Generally, outstanding nonqualified stock
options are exercisable during a ten-year period beginning one to three years
after the date of grant. All options were granted at fair market value at the
date of grant. There are currently no outstanding stock appreciation rights.
In January, 1998, the Company issued 92,400 options to certain Whitman and
Pepsi General employees to purchase Whitman common stock at a price of $25.03
per share. The Black Scholes valuation for these options was $5.64. In addition,
the Company issued 319,700 options to employees of Hussmann and Midas. As a
result of the spin-offs, options to purchase Whitman common stock held by
Hussmann and Midas employees were forfeited and new options to purchase shares
of the separate companies were issued to employees of each respective company.
The total number of options forfeited, including options granted in January,
1998, were 3,041,268, of which 889,793 were exercisable. The remaining option
agreements were modified to adjust the number of shares and relevant exercise
prices pursuant to an IRS formula.
No cash or other consideration was issued to employees and the aggregate
intrinsic value of each option immediately after the spin-offs was not greater
than the aggregate intrinsic value of each option immediately before the
spin-offs. Further, the ratio of the exercise price for each option to the
market value per share was not reduced, and the vesting provisions and option
period of each original grant remained the same. Accordingly, no new measurement
date was established relative to the forfeited options.
Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------------------
Range of Weighted-Average
Options Exercise Prices Exercise Price
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1996 5,601,765 $10.29 - $19.44 $14.10
----------
Granted 2,408,600 22.66 - 25.31 25.27
Exercised or surrendered for SARs (1,174,244) 10.29 - 18.25 13.36
Recaptured or terminated (29,034) 15.69 - 25.31 22.07
----------
Balance, December 31, 1996 6,807,087 11.23 - 25.31 18.15
----------
Granted 2,244,300 23.06 - 27.81 23.13
Exercised or surrendered for SARs (912,426) 11.23 - 25.31 10.80
Recaptured or terminated (123,734) 18.25 - 25.31 12.43
----------
Balance, December 31, 1997 8,015,227 11.23 - 27.81 19.81
----------
Activity prior to the spin-offs:
Granted 412,100 25.03 - 25.99 25.40
Exercised or surrendered for SARs (590,471) 11.23 - 25.31 13.66
Recaptured or terminated (3,041,268) 11.23 - 26.22 22.36
Adjustment due to the spin-offs 2,850,486
Balance, upon the spin-offs 7,646,074 7.04 - 17.44 11.89
Activity subsequent to the spin-offs:
Granted 957,600 15.84 - 22.66 17.30
Exercised or surrendered for SARs (1,487,026) 7.04 - 15.88 10.31
Recaptured or terminated (234,727) 11.45 - 19.53 15.11
----------
Balance, January 2, 1999 6,881,921 7.04 - 22.66 13.21
==========
</TABLE>
The number of options exercisable at January 2, 1999 was 4,768,922, with a
weighted-average exercise price of $11.97, compared with options exercisable of
4,442,759 at December 31, 1997 and 3,577,553 at December 31, 1996 with
weighted-average exercise prices of $16.76 and $13.52, respectively. At January
2, 1999, there were 4,747,733 shares available for future grants, primarily
provided for by the adoption of the Revised Stock Incentive Plan in November,
1997. The following table summarizes information regarding stock options
outstanding and exercisable at the end of 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------------
Weighted-Average
Range of Options Remaining Life Weighted-Average Options Weighted-Average
Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 7.04 - $12.19 2,624,949 4.3 $ 9.23 2,624,949 $ 9.23
$14.21 - $17.44 3,965,972 8.1 15.35 2,143,973 15.33
$19.53 - $22.66 291,000 9.4 20.03 -- --
--------- ---------
Total Options 6,881,921 6.7 13.21 4,768,922 11.97
========= =========
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" requires, among other items, the Company to disclose
either in the Consolidated Statements of Income or in the Notes to the
Consolidated Financial Statements an estimate of the cost of stock options
granted to employees. The Company has elected to continue to account for stock
options granted to employees in accordance with the intrinsic value method under
Accounting Principles Board Opinion No. 25. However, using the Black-Scholes
model and the following assumptions, the estimated fair values at the dates of
grant of options in 1998 (prior to the spin-offs of Hussmann and Midas), 1997
and 1996 were $5.64, $5.62 and $5.72, respectively. The weighted-average
estimated fair values of options granted in 1998 subsequent to the spin-offs was
$5.01.
<TABLE>
<CAPTION>
Options
Granted
After
Spin-Offs Options Granted Before Spin-Offs
--------- -----------------------------------------------
1998 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Risk-free interest rate 4.7% 5.3% 6.2% 6.5%
Expected dividend yield 1.0% 1.9% 1.7% 1.9%
Expected volatility 27.2% 19.8% 16.0% 16.7%
Estimated lives of options (in years) 5.0 5.0 5.0 5.0
</TABLE>
Based upon the above assumptions, the Company's pro forma net income (loss)
and income (loss) per share would have been:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Pro forma net income (loss) (in millions):
Income from continuing operations $ 59.8 $ 13.5 $ 46.5
Income (loss) from discontinued operations 2.4 (14.5) 90.1
Extraordinary loss on early extinguishment of debt (18.3) -- --
-------- -------- --------
Net income (loss) $ 43.9 $ (1.0) $ 136.6
======== ======== ========
Pro forma income (loss) per share - basic:
Continuing operations $ 0.59 $ 0.13 $ 0.44
Discontinued operations 0.02 (0.14) 0.86
Extraordinary loss on early extinguishment of debt (0.18) -- --
-------- -------- --------
Net income (loss) $ 0.43 $ (0.01) $ 1.30
======== ======== ========
Pro forma income (loss) per share - diluted:
Continuing operations $ 0.58 $ 0.13 $ 0.44
Discontinued operations 0.02 (0.14) 0.85
Extraordinary loss on early extinguishment of debt (0.18) -- --
-------- -------- --------
Net income (loss) $ 0.42 $ (0.01) $ 1.29
======== ======== ========
</TABLE>
Options granted in 1998, 1997 and 1996 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 do not consider the pro forma costs for
options granted before 1995. If full vesting were assumed, the estimated pro
forma compensation costs for each year would have been higher than indicated
above.
The Company granted 233,600 and 271,700 restricted shares of stock at a
weighted-average fair value (at the dates of grant) of $23.06 and $25.25 in 1997
and 1996, respectively, to key members of management. No restricted shares were
granted in 1998. Holders of restricted shares of Whitman common stock received
shares of Hussmann and Midas in the spin-offs, free of restrictions. A total of
132,707 Whitman restricted shares were forfeited by Hussmann and Midas
executives, which were subsequently replaced by restricted shares of equivalent
value in each respective company.
The Company recognized compensation expense in S,G&A of $0.7 million, $2.8
million and $1.7 million in 1998, 1997 and 1996, which included $0.3 million in
1998 associated with the dividend of Hussmann and Midas shares. Compensation
expense recorded in discontinued operations related to these grants was $0.7
million, $2.7 million and $1.2 million in 1998, 1997 and 1996, respectively,
which included $1.3 million in 1998 related to the dividend of Hussmann and
Midas shares, offset by the recapture of previously recorded expense of $0.6
million related to forfeited Whitman shares. On January 1, 1999, holders of
82,871 restricted shares of Whitman common stock received their shares free of
restrictions, which resulted in a charge of $0.3 million in 1998.
12. SHAREHOLDER RIGHTS PLAN
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. The Rights expired on
January 30, 1999.
13. PEPSI GENERAL NON-VOTING PREFERRED STOCK
In December, 1997, Whitman issued 794,115 shares of its common stock valued
at $20.4 million to an affiliate of PepsiCo, Inc. ("PepsiCo") in exchange for
2,025 shares of non-voting preferred stock of Pepsi General (including accrued
dividends). The non-voting preferred stock held by PepsiCo had been classified
as a component of minority interest. The accounting treatment was for Whitman to
record the 2,025 shares of non-voting preferred stock as an investment in its
subsidiary, Pepsi General, which is eliminated in consolidation. There was no
gain or loss on this transaction.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by continuing operations reflects cash payments and cash
receipts as follows:
(in millions) 1998 1997 1996
-------- -------- --------
Interest paid $ 51.4 $ 68.8 $ 67.0
Interest received 8.3 3.3 2.8
Income taxes paid 23.3 53.8 68.9
Income tax refunds 1.3 11.2 5.7
The Company also received interest from Hussmann and Midas related to their
intercompany account balances. Net interest received from Hussmann and Midas was
$1.6 million, $23.1 million and $23.7 million in 1998, 1997 and 1996,
respectively.
On December 31, 1996, the Company acquired the St. Petersburg, Russia
franchise from PepsiCo. Due to the two month time lag in financial reporting by
the Company's international operations, this acquisition was reported in the
first quarter of 1997. The total cost of this acquisition was $20.2 million
(fair value of assets acquired of $23.5 million, net of assumed liabilities,
excluding long-term debt, of $3.3 million), which was net of acquired cash of
$2.3 million and included $15.7 million of long-term debt assumed. The
acquisition was accounted for as a purchase, and the operating results include
the acquisition from the date of purchase. There were no other significant
acquisitions in 1998, 1997 or 1996.
Common stock issuances for other acquisitions in 1996 in the Consolidated
Statements of Shareholders' Equity were related to discontinued operations.
15. 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 related costs is subject to various factors,
including possible insurance recoveries and the allocation of liabilities among
many other potentially responsible and financially viable parties.
The Company's largest environmental exposure has been and continues to be
the remedial action required at a facility in Portsmouth, Virginia for which the
Company has an indemnity obligation. This is a superfund site which the U.S.
Environmental Protection Agency required be remediated at an estimated cost of
$31 million. Through 1998, the Company had spent an estimated $16.3 million (net
of $3.1 million of recoveries from other responsible parties) for remediation of
the Portsmouth site (consisting principally of soil treatment and removal) and
expects to incur an estimated $9 million to complete the remediation over the
next one to two years. The reduction in the total cost for this site from the
preliminary estimate is attributable primarily to improved technology and
remediation techniques.
Although the Company has indemnification obligations for environmental
liabilities at a number of other sites, including several superfund sites, it is
not anticipated that the expense involved at any specific site would have a
material effect on the Company. In the case of the other superfund sites, the
volumetric contribution for which the Company has an obligation has been
estimated and other large, financially viable parties are responsible for all or
most of the remainder.
At January 2, 1999, the Company had $24.3 million accrued to cover
potential environmental liabilities, which excludes possible insurance
recoveries and is determined on an undiscounted cash flow basis. Based on the
latest evaluations from outside advisors and consultants, the Company believes
the upper end of the range for its potential future environmental liabilities is
approximately $15 million higher than the current accrued balance. During 1998,
the Company recorded recoveries of $11.3 million from insurance companies and
other responsible parties related to these environmental liabilities, a portion
of which will be received in future periods. Receivables from such recoveries
were included as assets on the Company's balance sheets.
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 evaluations and litigation. The estimates are based upon
the judgments of outside consultants and experts and their evaluations of the
characteristics and parameters of the sites, including results from field
inspections, test borings and water flows. Their estimates are based upon the
use of current technology and remediation techniques, and do not take into
consideration any inflationary trends upon such claims or expenses, nor do they
reflect the possible benefits of continuing improvements in remediation methods.
The accruals also do not provide for any claims for environmental liabilities or
other potential issues which may 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, including indemnification claims
under agreements with previously sold subsidiaries for products liability and
toxic torts. The ultimate liability for these claims, 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.
Existing environmental liabilities associated with the Company's continuing
operations are not material.
16. SEGMENT REPORTING
Selected financial information related to the Company's business segments
is shown below:
<TABLE>
<CAPTION>
Sales Operating Income
------------------------------ -------------------------------
(in millions) 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic $1,551.5 $1,464.0 $1,451.1 $ 232.0 $ 200.3 $ 224.4
International 83.5 93.5 50.3 (17.2) (18.7) (12.1)
-------- -------- -------- -------- -------- --------
Total before corporate administrative expenses $1,635.0 $1,557.5 $1,501.4 214.8 181.6 212.3
======== ======== ========
Corporate administrative expenses (11.0) (51.4) (17.5)
-------- -------- --------
Total operating income 203.8 130.2 194.8
Interest expense, net (36.1) (42.3) (41.5)
Other expense, net ` (15.5) (18.0) (25.6)
-------- -------- --------
Pretax income $ 152.2 $ 69.9 $ 127.7
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Depreciation and
Identifiable Assets Amortization Capital Investments
------------------------------ ------------------------------ ------------------------------
(in millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic $1,167.2 $1,005.0 $ 979.7 $ 68.1 $ 64.5 $ 62.5 $ 132.6 $ 71.5 $ 77.1
International 142.3 127.1 97.7 7.0 5.9 4.0 26.3 11.8 9.8
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Pepsi General 1,309.5 1,132.1 1,077.4 75.1 70.4 66.5 158.9 83.3 86.9
Corporate and other
assets 259.8 233.9 227.8 2.6 3.4 8.7 0.2 0.1 0.3
-------- -------- -------- -------- -------- --------
Net assets of companies
held for disposition -- 663.7 775.4
-------- -------- --------
Total assets $1,569.3 $2,029.7 $2,080.6 $ 77.7 $ 73.8 $ 75.2 $ 159.1 $ 83.4 $ 87.2
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Operating income is exclusive of net interest expense, other miscellaneous
income and expense items, and income taxes. During the third and fourth quarters
of 1997, the Company recorded special charges of $49.3 million (see Note 4
"Special Charges"). These charges reduced the reported operating income for the
domestic and international operations of Pepsi General by $11.1 million and $3.7
million, respectively, in 1997. In addition, corporate administrative expenses
in 1997 included special charges of $34.5 million. Other expense, net, in 1996
included an $8.7 million charge, principally related to asset writedowns at
Pepsi General's joint venture in Poland. Foreign currency losses were $1.7
million in 1998, including $1.4 million associated with the Russia operations,
and were included in other expenses, net. Foreign currency gains or losses in
1997 and 1996 were not significant. There were no sales between geographical
areas or export sales. Sales to any single customer and sales to domestic or
non-U.S. governments were individually less than ten percent of consolidated
sales.
Equity in net losses and net assets of the Company's international
operations amounted to $20.6 million and $95.0 million, respectively, in 1998,
$20.4 million and $67.9 million in 1997 and $21.3 million and $74.0 million in
1996.
Corporate and other assets are principally cash and equivalents,
investments, property and miscellaneous other assets, including $91.6 million,
$92.1 million and $94.3 million of real estate investments as of fiscal year end
1998, 1997 and 1996, respectively.
17. TRANSACTIONS WITH PEPSICO
Pepsi General is a licensed producer and distributor of PepsiCo carbonated
soft drinks and other non-alcoholic beverages. Pepsi General purchases
concentrate from PepsiCo to be used in the production of these carbonated soft
drinks and other non-alcoholic beverages.
PepsiCo and Pepsi General share a business objective of increasing
availability and consumption of PepsiCo's brands. Accordingly, PepsiCo provides
Pepsi General with various forms of marketing support to promote PepsiCo's
brands. This support covers a variety of initiatives, including market place
support, marketing programs, marketing equipment investment and related program
support and shared media expense. PepsiCo and Pepsi General each record their
share of the cost of marketing programs in their financial statements. Based on
the objectives of the programs and initiatives, marketing support is recorded as
an adjustment to net sales or a reduction of selling, general and administrative
expenses. Support related to marketing equipment programs is recognized when the
equipment is received and placed into service. There are no conditions or
requirements which could result in the repayment of any support payments
received by Pepsi General.
Pepsi General manufactures and distributes fountain products and provides
fountain equipment service to PepsiCo customers in certain territories in
accordance with various agreements. There are other products which Pepsi General
produces and/or distributes through various arrangements with PepsiCo or
partners of PepsiCo. Pepsi General purchases concentrate from the Lipton Tea
Partnership and finished goods from the North American Coffee Partnership. Pepsi
General pays a royalty fee to PepsiCo for the use of the Aquafina trademark.
The Consolidated Statements of Income include the following income and
(expense) transactions with PepsiCo:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net sales $ 33.7 $ 35.2 $ 33.7
Cost of goods sold (288.3) (266.9) (242.5)
Selling, general and administrative expenses 41.3 23.1 24.0
</TABLE>
<PAGE>
18. SELECTED QUARTERLY FINANCIAL DATA
(unaudited and in millions, except for earnings per share)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998:
- -----
Sales $ 352.0 $ 408.9 $ 475.0 $ 399.1 $ 1,635.0
---------- ---------- ---------- ---------- ----------
Gross profit $ 133.1 $ 153.5 $ 177.3 $ 146.6 $ 610.5
---------- ---------- ---------- ---------- ----------
Income from continuing operations $ 8.1 $ 16.4 $ 26.2 $ 11.8 $ 62.5
Loss from discontinued operations (0.5) -- -- -- (0.5)
Extraordinary loss on early extinguishment of debt (18.3) -- -- -- (18.3)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (10.7) $ 16.4 $ 26.2 $ 11.8 $ 43.7
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 101.0 101.4 101.2 100.9 101.1
Incremental effect of stock options 1.7 1.8 1.5 1.7 1.8
---------- ---------- ---------- ---------- ----------
Diluted 102.7 103.2 102.7 102.6 102.9
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.08 $ 0.16 $ 0.26 $ 0.12 $ 0.62
Discontinued operations (0.01) -- -- -- (0.01)
Extraordinary loss on early extinguishment of debt (0.18) -- -- -- (0.18)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (0.11) $ 0.16 $ 0.26 $ 0.12 $ 0.43
========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.08 $ 0.16 $ 0.26 $ 0.12 $ 0.61
Discontinued operations -- -- -- -- (0.01)
Extraordinary loss on early extinguishment of debt (0.18) -- -- -- (0.18)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (0.10) $ 0.16 $ 0.26 $ 0.12 $ 0.42
========== ========== ========== ========== ==========
1997:
- -----
Sales $ 333.5 $ 392.5 $ 452.9 $ 378.6 $ 1,557.5
---------- ---------- ---------- ---------- ----------
Gross profit $ 126.7 $ 148.9 $ 169.8 $ 139.5 $ 584.9
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations $ 5.8 $ 11.2 $ 14.1 $ (15.3) $ 15.8
Income (loss) from discontinued operations 9.7 22.5 (47.9) 4.0 (11.7)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 15.5 $ 33.7 $ (33.8) $ (11.3) $ 4.1
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 102.2 101.6 101.5 101.2 101.6
Incremental effect of stock options 1.1 1.1 1.3 -- 1.3
---------- ---------- ---------- ---------- ----------
Diluted 103.3 102.7 102.8 101.2 102.9
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.06 $ 0.11 $ 0.14 $ (0.15) $ 0.16
Discontinued operations 0.09 0.22 (0.47) 0.04 (0.12)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.15 $ 0.33 $ (0.33) $ (0.11) $ 0.04
========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.06 $ 0.11 $ 0.14 $ (0.15) $ 0.15
Discontinued operations 0.09 0.22 (0.47) 0.04 (0.11)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.15 $ 0.33 $ (0.33) $ (0.11) $ 0.04
========== ========== ========== ========== ==========
</TABLE>
The sum of earnings per share for the quarters may not equal the fiscal
year amount due to rounding or to changes in the average shares outstanding
during the period.
Due to the loss from continuing operations in the fourth quarter of 1997,
no potential common shares were included in the computation of average diluted
shares. The effect of potential common shares, assuming they were not
anti-dilutive, would have resulted in average diluted shares of 102.6 million.
<PAGE>
18. SELECT QUARTERLY FINANCIAL DATA (continued)
(unaudited and in millions, except for earnings per share)
In 1997, the Company recorded special charges of $49.3 million related to
the restructuring of Pepsi General's organization, the severance of essentially
all of the Whitman Corporate management and staff, and expenses associated with
the spin-offs of Hussmann and Midas (see Note 4, Special Charges). These charges
reduced operating income for domestic and international operations of Pepsi
General by $11.1 million and $3.7 million, respectively.
<TABLE>
<CAPTION>
Third Fourth Fiscal
Quarter Quarter Year
---------- ---------- ----------
<S> <C> <C> <C>
Effect of special charges after taxes and minority interest:
Continuing operations $ (7.5) $ (24.1) $ (31.6)
Discontinued operations (76.0) (17.4) (93.4)
---------- ---------- ----------
Net income $ (83.5) $ (41.5) $ (125.0)
========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ (0.07) $ (0.24) $ (0.31)
Discontinued operations (0.75) (0.17) (0.92)
---------- ---------- ----------
Net income $ (0.82) $ (0.41) $ (1.23)
========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ (0.07) $ (0.24) $ (0.31)
Discontinued operations (0.74) (0.17) (0.91)
---------- ---------- ----------
Net income $ (0.81) $ (0.41) $ (1.22)
========== ========== ==========
</TABLE>
19. PROPOSED NEW BUSINESS RELATIONSHIP WITH PEPSICO (unaudited)
On January 25, 1999, the Board of Directors of the Company approved a new
business relationship with PepsiCo. As part of the Contribution and Merger
Agreement (the "Agreement") with PepsiCo and Heartland Territories Holdings,
Inc. ("New Whitman"), PepsiCo will contribute certain assets of several domestic
franchise territories to New Whitman and the Company will merge with New
Whitman. Contributed territories include Cleveland, Ohio, Dayton, Ohio,
Indianapolis, Indiana, St. Louis, Missouri and southern Indiana. The Agreement
is subject to shareholder approval. In addition, the Agreement provides for
Pepsi General to sell to PepsiCo its operations in Marion, Virginia, Princeton,
West Virginia and the St. Petersburg area of Russia. In turn, Pepsi General will
acquire PepsiCo's international operations in Hungary, the Czech Republic,
Slovakia and the balance of Poland. New Whitman will incur debt obligations of
approximately $300 million.
Under the Agreement, New Whitman will issue 54 million shares of common
stock to PepsiCo and PepsiCo will transfer its 20 percent interest in Pepsi
General to New Whitman. Together with shares previously owned, PepsiCo will then
hold approximately 38 percent of New Whitman's common stock. In addition, the
Agreement requires New Whitman to repurchase up to 16 million shares, or $400
million of its common stock, whichever is less, during the 12 month period
subsequent to the close of the transaction. PepsiCo has agreed not to sell its
shares into this repurchase program, which would result in PepsiCo holding
nearly 40 percent of New Whitman's common stock. Through March 23, 1999, the
Company had repurchased 11.6 million shares of its common stock in 1999, at a
total cost of $221.4 million, in partial satisfaction of this obligation.
PepsiCo has agreed that such repurchases may be used to reduce New Whitman's
repurchase commitments.
On March 19, 1999, Pepsi General completed the sale to PepsiCo of the
franchises in Marion, Virginia and Princeton, West Virginia. The sale of the
franchise in Russia is expected to be completed by the end of the first quarter
of 1999. During the second quarter of 1999, the Company expects to receive the
domestic and international territories it will acquire from PepsiCo upon
consummation of the Merger of Whitman and New Whitman contemplated by the
Agreement. The transactions will be accounted for by the purchase method.
Accordingly, the results of operations of the territories to be contributed by
or acquired from PepsiCo will be included with those of New Whitman for periods
subsequent to the date of contribution/acquisition.
See Unaudited Pro Forma Combined Financial Information for New Whitman on
the following pages.
<PAGE>
NEW WHITMAN
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JANUARY 2, 1999
<PAGE>
NEW WHITMAN
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma financial information should be read in conjunction
with the MD&A and consolidated financial statements and accompanying notes of
Whitman contained elsewhere in this Form 10-K.
The pro forma combined balance sheet gives effect to the following
items assuming they occurred as of Whitman's fiscal year end:
- The sale by Pepsi General of bottling operations and respective assets
and liabilities of the franchise territories located in Marion,
Virginia, Princeton, West Virginia, and the St. Petersburg area of
Russia to PepsiCo in exchange for $117.8 million;
- The acquisition by New Whitman of the bottling operations and the
respective assets and liabilities of the franchise territories located
in Cleveland, Ohio, Dayton, Ohio, Indianapolis, Indiana, St. Louis,
Missouri, southern Indiana, Hungary, the Czech Republic, Slovakia and
the balance of Poland, known as the PepsiCo Bottling Operations, from
PepsiCo for 54 million shares of New Whitman common stock, $176 million
in cash, $241.8 million of debt and the transfer of PepsiCo's 20%
minority interest in Pepsi General; and
- The repurchase of up to 16 million shares, or $400 million of common
stock, whichever is less, of Whitman/New Whitman common stock.
The pro forma combined statement of operations gives effect to the
following items assuming they occurred at the beginning of Whitman's 1998 fiscal
year:
- The sale by Pepsi General of its bottling operations and the respective
assets and liabilities of the franchise territories located in Marion,
Virginia, Princeton, West Virginia, and the St. Petersburg area of
Russia to PepsiCo and removal of their respective 1998 operating
results;
- The acquisition by New Whitman of the PepsiCo Bottling Operations from
PepsiCo and the inclusion of their respective 1998 operating results,
including amortization of goodwill associated with the purchase;
- The recognition of interest and debt issuance costs associated with
debt incurred in the acquisition of the PepsiCo Bottling Operations
from PepsiCo and debt incurred related to the repurchase of 16 million
shares of Whitman/New Whitman common stock;
- The elimination of interest expense allocated to the PepsiCo Bottling
Operations by PepsiCo on debt that will not be assumed by New Whitman;
- The elimination of corporate charges paid to PepsiCo by Pepsi General,
which by agreement will not continue; and
- The elimination of PepsiCo's 20% minority interest in Pepsi General.
The acquisition of the PepsiCo Bottling Operations territories is accounted
for under the purchase method. Pro forma earnings per share is based upon an
assumed 139.1 million shares outstanding after completing all transactions.
<PAGE>
NEW WHITMAN
PRO FORMA COMBINED BALANCE SHEET
(Unaudited and in millions)
<TABLE>
<CAPTION>
Fiscal Year End 1998
-----------------------------------------------------------------------------
PepsiCo
Bottling
Pepsi General Operations
Whitman Franchise Franchise New
Corporation Territories Territories Pro Forma Whitman
As Reported Sold (A) Acquired Adjustments Pro Forma
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 147.6 $ (1.5) $ 6.1 $ (6.1)(B) $ 146.1
Receivables, net 170.7 (8.8) 74.4 -- 236.3
Inventories 80.0 (6.8) 29.3 -- 102.5
Other current assets 30.8 (0.9) 5.2 -- 35.1
---------- ---------- ---------- ---------- ----------
Total current assets 429.1 (18.0) 115.0 (6.1) 520.0
---------- ---------- ---------- ---------- ----------
Investments 160.0 -- 37.2 -- 197.2
Property, net 499.3 (46.4) 274.0 -- 726.9
Intangibles, net 447.0 (49.4) 370.0 (370.0)(B)
1,028.7 (B) 1,426.3
Other assets 33.9 (1.4) 5.0 -- 37.5
---------- ---------- ---------- ---------- ----------
Total assets $ 1,569.3 $ (115.2) $ 801.2 $ 652.6 $ 2,907.9
========== ========== ========== ========== ==========
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt $ -- $ -- $ 22.8 $ (22.8)(B) $ --
Other current liabilities 233.2 (6.0) 92.9 18.7 (B) 338.8
--------- --------- --------- ---------- ----------
Total current liabilities 233.2 (6.0) 115.7 (4.1) 338.8
--------- --------- --------- ---------- ----------
Long-term debt 603.6 (115.5) -- 417.8 (B)
297.7 (C) 1,203.6
Deferred income taxes 99.1 (2.7) 9.5 -- 105.9
Other liabilities 73.3 (0.8) 14.6 -- 87.1
Minority interest 233.7 -- -- (233.7)(B) --
Shareholders' equity 326.4 9.8 661.4 (661.4)(B)
1,134.0 (B)
(297.7)(C) 1,172.5
--------- --------- --------- ---------- ----------
Total liabilities and equity $ 1,569.3 $ (115.2) $ 801.2 $ 652.6 $ 2,907.9
========= ========= ========= ========== ==========
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
NEW WHITMAN
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited and in millions, except per share data)
<TABLE>
<CAPTION>
Fiscal Year 1998
----------------------------------------------------------------------------
PepsiCo
Bottling
Pepsi General Operations
Whitman Franchise Franchise New
Corporation Territories Territories Pro Forma Whitman
As Reported Sold Acquired Adjustments Pro Forma
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 1,635.0 $ (77.5) $ 722.1 $ -- $ 2,279.6
Cost of goods sold 1,024.5 (52.6) 440.2 -- 1,412.1
----------- ----------- ----------- ----------- -----------
Gross profit 610.5 (24.9) 281.9 -- 867.5
Selling, general and administrative expenses 391.1 (21.7) 249.9 -- (D) 619.3
Allocated division and PepsiCo corporate
costs -- -- 19.7 -- (D) 19.7
Amortization expense 15.6 (1.6) 14.2 (14.2)(E)
25.7 (E) 39.7
----------- ----------- ----------- ----------- -----------
Operating income (loss) 203.8 (1.6) (1.9) (11.5) 188.8
Interest expense, net (36.1) 1.8 (4.8) (33.4)(F) (72.5)
Interest expense allocated by PepsiCo -- -- (46.1) 46.1 (G) --
Other expense, net (15.5) 2.3 (0.8) 9.2 (H) (4.8)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 152.2 2.5 (53.6) 10.4 111.5
Income taxes 69.7 1.1 (4.3) 8.8 (I) 75.3
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before minority interest 82.5 1.4 (49.3) 1.6 36.2
Minority interest 20.0 0.3 -- (20.3)(J) --
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations $ 62.5 $ 1.1 $ (49.3) $ 21.9 $ 36.2
=========== =========== =========== =========== ===========
Weighted average common shares:
Basic 101.1 38.0 (K) 139.1
Incremental effect of stock options 1.8 -- 1.8
----------- ----------- -----------
Diluted 102.9 38.0 140.9
=========== =========== ===========
Income from continuing operations per share:
Basic $ 0.62 $ 0.26
Diluted $ 0.61 $ 0.26
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
New Whitman
Notes to pro forma combined financial information
(A) To record the sale of Pepsi General franchise territories to PepsiCo by
removing the net assets and liabilities of the franchise territories sold
and adjusting for the following:
- The reduction of Whitman debt by $115.5 million, using the sale
proceeds of $117.8 million reduced by transaction costs of $2.3
million, and
- The increase in shareholders' equity, resulting from the gain on the
sale of the franchise territories estimated to be $9.8 million, after
tax.
The consideration to be received from PepsiCo is subject to adjustments
based on changes in the working capital accounts of the franchise
territories sold. However, such adjustments are not expected to be
significant. The gain on sale has not been reflected in the pro forma
combined statement of operations for fiscal year 1998. Instead, the actual
gain on sale will be recorded at the time of the sale in fiscal 1999.
(B) To record the transactions related to the acquisition of the PepsiCo
Bottling Operations franchise territories and the minority interest in
Pepsi General previously held by PepsiCo, as follows (in millions):
Acquisition costs:
Issuance of 54 million shares of common stock $1,134.0
Issuance of long-term debt 417.8
Accrual of estimated transaction costs 18.7
--------
Total acquisition costs 1,570.5
--------
Allocation of acquisition costs:
Net assets of the PepsiCo Bottling Operations franchise
territories 661.4
Less: intangible assets of the PepsiCo Bottling Operations
franchise territories (370.0)
--------
Net tangible assets of the PepsiCo Bottling Operations
franchise territories 291.4
Recorded value of minority interest in Pepsi General 233.7
Payoff by PepsiCo of short-term debt of the PepsiCo
Bottling Operations franchise territories 22.8
Less: cash balances of the PepsiCo Bottling Operations
franchise territories (6.1)
--------
Total allocation of acquisition costs 541.8
--------
Excess of acquisition costs over recorded values of assets
and liabilities $1,028.7
========
Allocation of acquisition costs over recorded values:
Fair value of property in excess of its recorded value, net $ *
Intangible assets *
--------
Total allocation of acquisition costs over recorded values $1,028.7
========
* The preliminary allocation of the excess acquisition costs will be recorded
upon the completion of the preliminary appraisals of property, plant and
equipment that are currently in process.
Additional information about the acquisition costs and allocation of those
costs is as follows:
- The shares to be issued by New Whitman were valued at $21 per share,
based on the average closing market price of Whitman common stock as
reported on the New York Stock Exchange during the three day period
immediately before and after the January 25, 1999 announcement of the
agreement between Whitman and PepsiCo.
- The long-term debt will be used to make a cash payment of $176.0
million to PepsiCo payable when the transactions are closed and
subsequent payments to PepsiCo of $241.8 million.
- The portion of the excess purchase cost allocated to property is based
on preliminary appraisals. The allocation is subject to refinement when
the final appraisals are completed after the transactions are closed.
The Company anticipates that the final appraisals will not differ
significantly from the preliminary appraisals.
- The remainder of the excess purchase cost has been allocated to
intangibles, which are comprised of the franchise rights acquired and
goodwill. No portion of the excess purchase cost has been allocated to
the other assets acquired or liabilities assumed. The Company believes
that the fair values of those other assets and liabilities will
approximate their carrying values.
- The consideration to be paid to PepsiCo is subject to adjustments based
on changes in the working capital accounts of the PepsiCo Bottling
Operations franchise territories. However, such adjustments are not
expected to be significant.
(C) To record the repurchase of 16 million shares of New Whitman common stock,
pursuant to the agreement, and to record the issuance of debt to finance
the repurchase (in millions):
Repurchase of 11.6 million shares through March 23, 1999 $ 221.4
Subsequent repurchases of 4.4 million shares 76.3
--------
Debt issued to fund repurchases $ 297.7
========
The repurchase cost of the 4.4 million shares is based on an assumed
average price of $17.35 per share, which approximates the average price of
the shares repurchased in the five days preceding and including March 23,
1999. An increase or decrease in the repurchase cost of $1 per share on the
remaining 4.4 million shares would change the amount of debt issued to fund
repurchases by $4.4 million. The change in debt would change pro forma
interest expense by $0.3 million on an annual basis or $0.2 million after
tax.
(D) Adjustments have not been made to give effect to the potential reduction in
administrative expenses that may be realized by New Whitman due to facility
consolidations and other cost savings initiatives, because the amount of
such potential savings cannot be estimated.
(E) To reflect the amortization of intangible assets acquired, the following
entries were made:
- The elimination of the amortization expense recorded by the PepsiCo
Bottling Operations franchise territories.
- The recording of the amortization expense on the intangible asset of
$1,028.7 million, related to the PepsiCo Bottling Operations franchise
territories, using a forty-year amortization period.
(F) To record the net increase in interest expense based on the net increase in
long-term debt, as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Debt incurred by New Whitman to fund payments to PepsiCo (Note B) $ 417.8
Debt incurred for share repurchases (Note C) 297.7
Less: proceeds from sales of Pepsi General franchise territories (Note A) (115.5)
-----------
Net increase in long-term debt $ 600.0
===========
Interest at an assumed rate of 6.0% $ 36.0
Amortization of debt issuance costs 0.4
-----------
Total additional interest 36.4
Plus: external interest expense recorded by franchise territories sold 1.8
Less: elimination of external interest expense recorded by the PepsiCo
Bottling Operations (4.8)
-----------
Pro forma adjustment of interest expense $ 33.4
===========
</TABLE>
A change in the interest rate of 1/8 of a percentage point would have the
effect of changing interest expense $0.8 million or $0.5 million after tax.
(G) To eliminate the interest expense allocated by PepsiCo to the PepsiCo
Bottling Operations. The underlying debt will not be assumed by New
Whitman.
(H) To eliminate the corporate charge paid by Pepsi General to PepsiCo. Whitman
and PepsiCo have agreed to terminate this charge once the transactions are
closed.
(I) To record the estimated tax impact of the pro forma adjustments, using an
incremental tax rate of 40%, determined as follows:
Pretax income of pro forma adjustments $ 10.4
Plus: non-deductible intangible amortization 11.5
-------
Total 21.9
Incremental tax rate x 40%
-------
Pro forma tax adjustment $ 8.8
=======
(J) To eliminate PepsiCo's 20% minority interest in the earnings of Pepsi
General, due to the transfer of that minority interest to New Whitman.
(K) To record the net increase in weighted average common shares outstanding,
giving effect to the issuance of 54 million shares to PepsiCo (Note B) less
the 16 million shares to be acquired under the share repurchase commitment
(Note C).
EBITDA is defined as income (loss) before income taxes plus the sum of
interest, depreciation and amortization. Information concerning EBITDA has been
included below because it is expected to be used by certain investors as a
measure of operating performance and a measure of the ability to service
potential debt. EBITDA is not required by GAAP and, accordingly, should not be
considered an alternative to income (loss) from continuing operations or any
other measure of performance required by GAAP. Additionally, it should not be
used as a measure of cash flow or liquidity under GAAP. Following is a summary
of historical and pro forma EBITDA, and depreciation and amortization for 1998
(in millions):
Depreciation
EBITDA and Amortization
------ ----------------
Whitman Corporation as reported $266.0 $ 77.7
Pepsi General franchise territories sold (5.3) (6.0)
PepsiCo Bottling Operations franchise territories 62.1 64.8
Pro forma adjustments 15.2 17.5
------ ------
New Whitman - pro forma basis $338.0 $154.0
====== ======
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
----------------------
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JANUARY 2, 1999
<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, Restricted 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, 1998.
(10)j~ **Pepsi-Cola General Bottlers, Inc. Executive Retirement Plan, as
Amended and Restated Effective January 1, 1998.
(10)k# **Deferred Compensation Plan for Directors, as Amended November 18,
1988.
(10)l+ **Amendment to Stock Incentive Plan dated September 20, 1996.
(10)m* **Form of Restricted Stock Award Agreement.
(10)n~ **Revised Stock Incentive Plan (adopted November 21, 1997).
(10)o **Form of Change in Control Agreement dated December, 1997.
(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.
~ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 under the indicated Exhibit
number.
Exhibit (10)o
CHANGE IN CONTROL AGREEMENT
This CHANGE IN CONTROL AGREEMENT dated as of December , 1997, among WHITMAN
CORPORATION, a Delaware corporation (the "Company"), PEPSI-COLA GENERAL
BOTTLERS, INC., a Delaware corporation ("Pepsi General"), and
____________________________ (the "Executive").
WHEREAS, the Company's Board of Directors has determined that, in light of
the importance of the Executive's continued services to the stability and
continuity of management of the Company and its subsidiaries, it is appropriate
and in the best interests of the Company and of its shareholders to reinforce
and encourage the Executive's continued disinterested attention and undistracted
dedication to his duties in the potentially disturbing circumstances of a
possible change in control of the Company by providing some degree of personal
financial security;
WHEREAS, Pepsi General is an 80% owned Subsidiary of the Company;
WHEREAS, on December 31, 1997, Whitman intends to distribute to its
shareholders all of the issued and outstanding shares of common stock of its
Subsidiaries, Hussmann International, Inc. and Midas Group, Inc. (such date, or
any subsequent date on which such distribution shall finally occur being
hereinafter referred to as the "Effective Date");
WHEREAS, in order to induce the Executive to remain in the employ of the
Company or a subsidiary of the Company (a "Subsidiary"), following the Effective
Date, the Company's Board of Directors has determined that it is desirable to
pay the Executive the severance compensation set forth below if the Executive's
employment with the Company or a Subsidiary terminates in one of the
circumstances described below following a Change in Control (as defined below);
and
WHEREAS, Whitman and/or a Subsidiary have previously entered into Severance
Compensation and Change in Control Agreements with certain executive officers of
the Company and its Subsidiaries, and this Agreement shall, as of the Effective
Date, replace in its entirety any and all such prior Agreements ("Prior
Agreements") to which the Executive is a party;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the Company and the Executive agree as follows:
1. Term of Agreement. (a) The term of this Agreement shall commence on the
Effective Date and shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, on
the earlier to occur of the date on which the Executive reaches age 65
and the third anniversary of the Effective Date, subject to extension
as provided in Section 1(b) below; provided, however, that this
Agreement shall continue in effect until the earlier to occur of the
date on which the Executive reaches age 65 and the date three years
beyond the initial or any extended date of termination of this
Agreement if a Change in Control shall have occurred prior to such date
of termination of this Agreement (and shall continue for such
additional period as any obligation of the Company under this Agreement
shall remain unpaid).
(b) Commencing on the date after the Effective Date and continuing on
each date thereafter (each such date being hereinafter referred to
as a "Renewal Date"), the term of this Agreement shall be
automatically extended so as to terminate three years thereafter,
unless at least 60 days prior to a specified Renewal Date the
Company shall give written notice to the Executive that the term
of this Agreement shall not be so extended.
2. Change in Control. No compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in
Control while the Executive is still an employee of the Company or a
Subsidiary, and (b) the Executive's employment by the Company or a
Subsidiary thereafter shall have been terminated in accordance with
Section 3 of this Agreement.
For purposes of this Agreement, a "Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of beneficial ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 25% or more of
either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Common Stock") or (B) the combined
voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege unless the security
being so exercised, converted or exchanged was acquired directly
from the Company), (2) any acquisition by the Company, (3) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of clause (iii) in this definition of Change in
Control;
(ii) individuals who, as of the Effective Date, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board; provided
that any individual who becomes a director of the Company
subsequent to the Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by the vote
of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board;
and provided further, that any individual who was initially
elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a
member of the Incumbent Board;
(iii)the consummation of a reorganization, merger or consolidation of
the Company or sale or other disposition of all or substantially
all of the assets of the Company (a "Corporate Transaction");
excluding, however, a Corporate Transaction pursuant to which (A)
all or substantially all of the individuals or entities who are
the beneficial owners, respectively, of the Outstanding Common
Stock and the Outstanding Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or
indirectly, more than 66-2/3% of, respectively, the outstanding
shares of common stock, and the combined voting power of the
outstanding securities of such corporation entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or indirectly) in substantially
the same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Common Stock and the Outstanding Voting Securities, as
the case may be, (B) no Person (other than: the Company; any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company; the
corporation resulting from such Corporate Transaction; and any
Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 25% or more of the
Outstanding Common Stock or the Outstanding Voting Securities, as
the case may be) will beneficially own, directly or indirectly,
25% or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of
directors and (C) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction; or
(iv) the consummation of a plan of complete liquidation or dissolution
of the Company.
3. Termination Following Change in Control. (a) If a Change in Control
shall have occurred while the Executive is still an employee of the
Company or a Subsidiary, the Executive shall be entitled to the
compensation provided in Section 4 of this Agreement upon the
subsequent termination of the Executive's employment with the Company
or Subsidiary within three years of the date upon which the Change in
Control shall have occurred, unless such termination is as a result of
(i) the Executive's death, (ii) the Executive's Disability (as defined
in Section 3(b) below), (iii) the Executive's Retirement (as defined in
Section 3(c) below), (iv) the Executive's termination for Cause (as
defined in Section 3(d) below), or (v) the Executive's decision to
terminate employment other than for Good Reason (as defined in Section
3(e) below). Notwithstanding anything to the contrary in this
Agreement, if a Change in Control occurs and if the Executive's
employment with the Company or a Subsidiary was terminated prior to the
date on which the Change in Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who had taken steps reasonably
calculated to effect the Change in Control, or (ii) otherwise arose in
connection with or anticipation of the Change in Control, then for all
purposes of this Agreement, the termination of the Executive's
employment shall be deemed to have occurred immediately following the
Change in Control.
(b) Disability. If, as a result of the Executive's incapacity due to a
medically determinable physical or mental illness which can be
expected to be permanent or of indefinite duration (as certified
in writing by a physician selected by the Company and reasonably
acceptable to the Executive), the Executive shall qualify for
benefits under the long-term disability plan of the Company or a
Subsidiary and shall have been absent from his duties with the
Company or a Subsidiary on a full-time basis for a continuous
period of six months commencing with the date of the Change in
Control or the first day of such absence (whichever is later) the
Company or such Subsidiary may terminate the Executive's
employment for "Disability" without the Executive being entitled
to the compensation provided in Section 4.
(c) Retirement. The term "Retirement" as used in this Agreement shall
mean termination by the Company or a Subsidiary or the Executive
of the Executive's employment based on the Executive having
reached age 65 without the Executive being entitled to the
compensation provided in Section 4. Termination based on
"Retirement" shall not include, for purposes of this Agreement,
the Executive's taking of early retirement by reason of a
termination by the Executive of his employment for Good Reason.
(d) Cause. The Company or a Subsidiary may terminate the Executive's
employment for Cause without the Executive being entitled to the
compensation provided in Section 4. For purposes of this
Agreement, the Company or Subsidiary shall have "Cause" to
terminate the Executive's employment only on the basis of (i) the
Executive's wilful and continued failure substantially to perform
his duties with the Company or Subsidiary (other than any such
failure resulting from his incapacity due to physical or mental
illness or any such failure resulting from the Executive's
termination for Good Reason), after a written demand for
substantial performance is delivered to the Executive by the Chief
Executive Officer (or if the Executive is Chief Executive Officer,
by the Board of Directors) which specifically identifies the
manner in which the Chief Executive Officer (or the Board of
Directors if the Executive is Chief Executive Officer) believes
that the Executive has not substantially performed his duties, or
(ii) the Executive's wilful engagement in gross conduct materially
and demonstrably injurious to the Company or a Subsidiary. For
purposes of this subsection, no act or failure to act on the
Executive's part shall be considered "wilful" unless done, or
omitted to be done, by the Executive not in good faith and without
reasonable belief that his action or omission was in the best
interest of the Company or a Subsidiary. The Executive shall not
be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Executive a written statement of
the Chief Executive Officer (or if the Executive is Chief
Executive Officer, a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire
membership of the Board of Directors at a duly convened meeting of
the Board of Directors), finding that in the good faith opinion of
the Chief Executive Officer (or the Board of Directors if the
Executive is Chief Executive Officer) the Executive was guilty of
conduct set forth in clause (i) or (ii) of the second sentence of
this Section 3(d) and specifying the particulars thereof in
detail.
(e) Good Reason. The Executive may terminate the Executive's
employment with the Company or a Subsidiary for Good Reason within
three years after a Change in Control and during the term of this
Agreement and become entitled to the compensation provided in
Section 4. For purposes of this Agreement, "Good Reason" shall
mean any of the following events, unless it occurs with the
Executive's express prior written consent:
(i) the assignment to the Executive by the Company or a
Subsidiary of any duties inconsistent with, or a diminution
of, the Executive's position, duties, titles, offices,
responsibilities or status with the Company or a Subsidiary
immediately prior to a Change in Control, or any removal of
the Executive from or any failure to reelect the Executive
to any of such positions, except in connection with the
termination of the Executive's employment for Disability,
Retirement or Cause or as a result of the Executive's death
or by the Executive other than for Good Reason;
(ii) a reduction by the Company or a Subsidiary in the
Executive's base salary as in effect on the date hereof or
as the same may be increased from time to time during the
term of this Agreement or the Company's or Subsidiary's
failure to increase (within 15 months of the Executive's
last increase in base salary) the Executive's base salary
after a Change in Control in an amount which is
substantially similar, on a percentage basis, to the average
percentage increase in base salary for all officers of the
Company or the Subsidiary effected during the preceding 12
months, other than a reduction of the Executive's base
salary pursuant to the terms of the short-term or long-term
disability plans of the Company or a Subsidiary during a
period in which the Executive is disabled (within the
meaning of such plan or plans) and qualifies for benefits
under such plan or plans;
(iii) any failure by the Company or a Subsidiary to continue in
effect any benefit plan or arrangement (including, without
limitation, any pension or retirement plan, employee stock
ownership plan, group life insurance plan, medical, dental,
accident and disability plans and educational assistance
reimbursement plan) in which the Executive is participating
at the time of a Change in Control (or to substitute and
continue other plans providing the Executive with
substantially similar benefits) (hereinafter referred to as
"Benefit Plans"), the taking of any action by the Company or
a Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's
benefits under any such Benefit Plan or deprive the
Executive of any material fringe benefit enjoyed by the
Executive at the time of a Change in Control, or the failure
by the Company or Subsidiary to provide the Executive with
the number of paid vacation days to which the Executive is
entitled in accordance with the vacation policies in effect
at the time of a Change in Control;
(iv) any failure by the Company or a Subsidiary to continue in
effect any incentive plan or arrangement (including, without
limitation, the Company's annual bonus and contingent bonus
arrangements and credits and the right to receive
performance awards and similar incentive compensation
benefits) in which the Executive is participating at the
time of a Change in Control (or to substitute and continue
other plans or arrangements providing the Executive with
substantially similar benefits) (hereinafter referred to as
"Incentive Plans") or the taking of any action by the
Company or a Subsidiary which would adversely affect the
Executive's participation in any such Incentive Plan or
reduce the Executive's benefits under any such Incentive
Plan in an amount which is not substantially similar, on a
percentage basis, to the average percentage reduction of
benefits under any such Incentive Plan effected during the
preceding 12 months for all officers of the Company or a
Subsidiary participating in any such Incentive Plan;
(v) any failure by the Company or a Subsidiary to continue in
effect any plan or arrangement to receive securities of the
Company or awards the value of which is derived from
securities of the Company (including, without limitation,
the Company's Stock Incentive Plan and any other plan or
arrangement to receive and exercise stock options, stock
appreciation rights, restricted stock, phantom stock or
grants thereof or to acquire stock or other securities of
the Company) in which the Executive is participating at the
time of a Change in Control (or to substitute and continue
plans or arrangements providing the Executive with
substantially similar benefits) (hereinafter referred to as
"Securities Plans") or the taking of any action by the
Company or a Subsidiary which would adversely affect the
Executive's participation in or materially reduce the
Executive's benefits under any such Securities Plan;
(vi) a relocation of the Company's principal executive offices or
the Executive's relocation to any metropolitan area other
than the metropolitan area in which the Executive performed
the Executive's duties immediately prior to a Change in
Control;
(vii) a substantial increase in the Executive's business travel
obligations over such obligations as they existed at the
time of a Change in Control;
(viii)any material breach by the Company or a Subsidiary of any
provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company pursuant
to Section 7(a); or
(x) any purported termination by the Company or a Subsidiary of
the Executive's employment which is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 3(f), including any purported termination of
employment under the circumstances described in the last
sentence of Section 3(a).
(f) Notice of Termination. Any termination of the Executive's
employment by the Company or a Subsidiary pursuant to Section
3(b), 3(c) or 3(d) or by the Executive pursuant to Section 3(e)
shall be communicated to the other party by a Notice of
Termination. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by the Company or
Subsidiary shall be effective without such Notice of Termination.
(g) Date of Termination. "Date of Termination" shall mean (a) if the
Executive's employment is terminated by the Company or a
Subsidiary for Disability, 30 days after Notice of Termination is
given to the Executive (provided that the Executive shall not have
returned to the performance of the Executive's duties on a
full-time basis during such 30-day period) or (b) if the
Executive's employment is terminated for any other reason, the
date on which a Notice of Termination is given.
4. Severance Compensation upon Termination. (a) If the Executive's
employment by the Company or a Subsidiary is terminated (i) by the
Company or Subsidiary pursuant to Section 3(b), 3(c) or 3(d) or by
reason of death or (ii) by the Executive other than for Good Reason,
the Executive shall not be entitled to any severance compensation under
this Agreement, but the absence of the Executive's entitlement to any
benefits under this Agreement shall not prejudice the Executive's right
to the full realization of any and all other benefits to which the
Executive shall be entitled pursuant to the terms of any employee
benefit plans or other agreements or policies of the Company or a
Subsidiary in which the Executive is a participant or to which the
Executive is a party.
(b) If the Executive's employment by the Company or a Subsidiary is
terminated (x) by the Company or such Subsidiary other than
pursuant to Section 3(b), 3(c) or 3(d) or by reason of death or
(y) by the Executive for Good Reason, then the Executive shall be
entitled to the severance compensation provided below:
(i) In lieu of any further salary or incentive payments to the
Executive for periods subsequent to the Date of Termination,
the Company shall pay in cash as severance compensation to
the Executive at the time specified in subsection (ii)
below, a lump-sum severance payment equal to three (3) times
the Executive's Adjusted Annual Compensation. For purposes
of this Agreement, "Adjusted Annual Compensation" shall mean
the sum of (x) an amount equal to the highest level of the
Executive's annual base salary in effect (calculated prior
to any deferral of salary, qualified or nonqualified)
between the time of the Change in Control and the Date of
Termination, (y) an amount equal to the greater of the
amounts earned by the Executive under the annual incentive
compensation plan of the Company or a Subsidiary (or under
the Whitman Management Incentive Compensation Plan, if
applicable) for the two preceding calendar years (calculated
prior to any deferral of salary, qualified or nonqualified),
or, if the Executive has participated in such plan for only
one year, an amount equal to the amount earned under such
plan for the preceding calendar year, and (z) an amount
equal to one-third of the sum of the amounts of the current
"Target" values for the Executive under any annual or long
term incentive compensation plans of the Company or a
Subsidiary, such Target values to be prorated from the
beginning of the applicable measurement period for each such
plan through the end of the month in which the Date of
Termination occurs.
(ii) The severance compensation provided for in subsection (i)
above shall be paid not later than the 10th day following
the Date of Termination; provided, however, that, if the
amount of such compensation cannot be finally determined on
or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the
Company, of the minimum amount of such compensation and
shall pay the remainder of such compensation (together with
interest at the rate provided in Section 1274(b)(2)(B) of
the Internal Revenue Code of 1986, as amended (the "Code"))
as soon as the amount thereof can be determined, but in no
event later than the 30th day after the Date of Termination.
In the event that the amount of the estimated payment
exceeds the amount subsequently determined to have been
payable, such excess shall constitute a loan by the Company
to the Executive payable on the 30th day after demand by the
Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code, commencing on the 31st
day following such demand).
(iii) The Company shall arrange to provide the Executive for a
period of thirty-six (36) months following the Date of
Termination or until the Executive's earlier death, with
life, medical, dental, accident and disability insurance
benefits and a package of "executive benefits", including to
the extent applicable capital assessments and dues for
pre-existing club memberships and the use of an automobile
or an allowance therefor (collectively, "Employment
Benefits"), substantially similar to those which the
Executive was receiving immediately prior to the Date of
Termination.
(iv) During the term of this Agreement and through the period of
thirty-six (36) months following the Date of Termination,
all benefits under any pension or retirement plans, employee
stock ownership plan or any other plan or agreement relating
to retirement benefits (collectively, "Retirement Benefits")
in which the Executive participates shall continue to accrue
to the Executive, crediting of service of the Executive with
respect to Retirement Benefits shall continue, and the
Executive shall be entitled to receive all Retirement
Benefits provided to the Executive as a fully vested
participant under any such plan or agreement relating to
retirement benefits. No contributions shall be required to
be made by the Executive to any plan providing for employee
contributions following the Date of Termination. To the
extent that the amount of any Retirement Benefits are or
would be payable from a nonqualified plan, the Company
shall, as soon as practicable following the Date of
Termination (but in no event later than the 30th day after
the Date of Termination), pay directly to the Executive in
one lump sum, cash in an amount equal to the additional
benefits that would have been provided had such accrual or
crediting been taken into account in calculating such
Retirement Benefits. Such lump sum payment shall be
calculated as provided in the relevant plan and, in the case
of a defined contribution plan, shall include an amount
equal to the gross amount of the maximum employer
contributions.
(c) In the event the severance compensation payable under this Section
4, either alone or together with any other payments to the
Executive from the Company or a Subsidiary (including, but not
limited to, payments under the Company's Stock Incentive Plan or
any agreement or award issued pursuant to such Plan or any
successor plan), would constitute a "parachute payment" (as
defined in Section 280G of the Code), and subject the Executive to
the excise tax imposed by Section 4999 of the Code, the Company
shall pay the Executive, as additional severance compensation
hereunder and payable at the same time or times as such severance
compensation, the amount of such excise tax and any additional
taxes payable by the Executive by reason of such payment (on the
basis of a customary "gross-up" formula), as calculated by the
Company. The Company agrees to indemnify and hold harmless the
Executive from and against any liability for the payment of
additional taxes arising from any deficiency in the amount of such
excise tax and any additional taxes thereon so calculated by the
Company, together with any interest or penalties applicable
thereto; provided, however, that it shall be a condition of this
obligation to indemnify and hold harmless the Executive that the
Executive shall have timely notified the Company of any proposed
assessment relating to any claimed deficiency therein and offered
the Company the right to contest such assessment or participate
in, at the expense of the Company, any proceeding relating
thereto.
5. Payment of Taxes; Continuation of Employment. Notwithstanding any other
provision of this Agreement or the premises hereto, in the event the
Executive is entitled to receive compensation (whether in the form of
cash, securities or other form of compensation) under or pursuant to
any plan or agreement of or with the Company or a Subsidiary as the
result of a Change in Control, the Company shall pay to the Executive
any applicable excise tax, and any taxes thereon, and shall indemnify
and hold harmless the Executive in respect thereof, as provided in
Section 4(c) above, regardless of whether the employment of the
Executive with the Company or a Subsidiary shall have terminated.
6. No Obligation To Mitigate Damages; No Effect on other Contractual
Rights. (a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned
by the Executive after the termination of the Executive's employment
with the Company or a Subsidiary.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which
would accrue solely as a result of the passage of time, under any
Benefit Plan, Incentive Plan or Securities Plan, employment
agreement or other contract, plan or arrangement of the Company or
any Subsidiary.
7. Successor to the Company. (a) The Company will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all the business and/or assets of
the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession
or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or
assets as aforesaid which executes and delivers the agreement provided
for in this Section 7 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still
payable to the Executive hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisees, legatees, or
other designees or, if there be no such designee, to the
Executive's estate.
8. Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be given by United States certified mail (return receipt
requested, postage prepaid), by personal delivery or by a nationally
recognized express delivery service, and shall be deemed to have been
given when actually received, as follows:
If to the Company or Pepsi General:
[Whitman Corporation]
[Pepsi-Cola General Bottlers, Inc.]
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attention of: General Counsel
If to the Executive, to the Executive's home address as shown on the Company's
personnel records; or such other address as either party may have given to the
other in writing in accordance herewith.
9. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed
to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
10. Employment. The Executive agrees to be bound by the terms and
conditions of this Agreement and to remain in the employ of the Company
or a Subsidiary during any period following any public announcement by
any person of any proposed transaction or transactions which, if
effected, would result in a Change in Control until a Change in Control
has taken place or, in the opinion of the Board of Directors, such
person has abandoned or terminated its efforts to effect a Change in
Control. Subject to the foregoing and to the last sentence of Section
3(a), nothing contained in this Agreement shall impair or interfere in
any way with the right of the Executive to terminate the Executive's
employment or the right of the Company or any Subsidiary to terminate
the employment of the Executive with or without cause prior to a Change
in Control. Nothing contained in this Agreement shall be construed as a
contract of employment between the Company or any Subsidiary and the
Executive or as a right of the Executive to continue in the employ of
the Company or any Subsidiary, or as a limitation of the right of the
Company or any Subsidiary to discharge the Executive with or without
cause prior to a Change in Control.
11. Validity. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
13. Legal Fees and Expenses. (a) The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company or a
Subsidiary contesting the validity, enforceability or the Executive's
interpretation of, or determinations under, this Agreement.
(b) The Company shall pay all legal fees and expenses which the
Executive may incur by reason of the termination of the
Executive's employment, other than as a result of (i) the
Executive's death, (ii) the Executive's Disability (as defined in
Section 3(b) above), (iii) the Executive's Retirement (as defined
in Section 3(c) above), (iv) the Executive's termination for Cause
(as defined in Section 3(d) above), or (v) the Executive's
decision to terminate employment other than for Good Reason (as
defined in Section 3(e) above; such fees and expenses shall
include, without limitation, those incurred in contesting or
disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.
(c) The Company shall pay all legal fees and expenses which the
Executive may incur as a result of any tax assessments or
proceedings arising from payments made by the Company pursuant to
Section 4(c) or Section 5 above.
(d) If the payment by the Company of any legal fees and expenses
pursuant to this Section 13 shall constitute compensation to the
Executive, the Company agrees, as a separate and independent
undertaking, to pay to the Executive upon demand any and all
taxes, of whatever nature or description, applicable to such
payment, together with any taxes thereon (on the basis of a
customary "gross-up" formula).
14. Confidentiality. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company
and its Subsidiaries and their business so long as such information is
not otherwise publicly disclosed.
15. Effective Date of this Agreement and Termination of Prior Agreement(s).
This Agreement shall become effective on the Effective Date, whereupon
any and all Prior Agreements shall be terminated and be of no further
force or effect. Whitman and Pepsi General shall each be and be deemed
to be a third-party beneficiary of this Section 15.
16. Change in Control of Pepsi General. In the event there shall be a
Change in Control of Pepsi General, within the meaning of clauses (i),
(iii) or (iv) of Section 2 of this Agreement (as if Pepsi General were
the "Company" thereunder), and if the Executive's employment with the
Company or a Subsidiary thereafter shall have been terminated in
accordance with Section 3 of this Agreement, then the Executive shall
be entitled to the compensation and all other rights and benefits
provided for in this Agreement to the same tenor and effect as if a
Change in Control of the Company had occurred; provided, however, that
for the purposes of this Section 16, the exclusion contained in
subclause (1) of clause (i) of Section 2 of this Agreement shall not
apply. IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
WHITMAN CORPORATION
By
Name:
Title:
PEPSI-COLA GENERAL BOTTLERS, INC.
By
Name:
Title:
EXECUTIVE
By
Name:
Exhibit 12
WHITMAN CORPORATION
STATEMENT OF CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions, except ratios)
<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before taxes and $ 152.2 $ 69.9 $ 127.7 $ 118.2 $ 80.3
minority interest
Fixed charges 51.5 75.6 74.4 76.7 72.2
---------- ---------- ---------- ---------- ----------
Earnings as adjusted $ 203.7 $ 145.5 $ 202.1 $ 194.9 $ 152.5
========== ========== ========== ========== ==========
Fixed charges:
Interest expense $ 46.4 $ 69.0 $ 68.2 $ 70.3 $ 67.0
Preferred stock dividend requirement of majority
owned subsidiary -- 1.7 1.5 1.4 1.1
Portion of rents representative of interest factor 5.1 4.9 4.7 5.0 4.1
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 51.5 $ 75.6 $ 74.4 $ 76.7 $ 72.2
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges* 4.0x 1.9x 2.7x 2.5x 2.1x
========== ========== ========== ========== ==========
</TABLE>
* Intercompany interest income from Hussmann and Midas was $1.6 million,
$23.1 million, $23.7 million, $21.8 million and $20.6 million in 1998,
1997, 1996, 1995 and 1994, respectively. If the fixed charges had been
reduced by this intercompany interest income, the ratio of earnings to
fixed charges for 1998, 1997, 1996, 1995 and 1994 would have been 4.1x,
2.3x, 3.5x, 3.2x and 2.6x, respectively.
Whitman Corporation also recorded special charges of $49.3 million during
1997. Excluding these special charges, the 1997 ratio of earnings to fixed
charges would have been 2.6x. Additionally, if the fixed charges for 1997
were adjusted for the intercompany interest income noted above, the ratio
of earnings to fixed charges would have been 3.3x.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
As of February 1, 1999
Percentage Of
Voting Stock
Owned Or
Place of Controlled By
Name Incorporation The Registrant
- ---- ------------- --------------
Whitman Corporation (Registrant) Delaware
Pepsi-Cola General Bottlers, Inc. Delaware 80%
Algonquin Leasing, Inc. Delaware 80
Globe Transport, Inc. Delaware 80
GB Baltics LLC Delaware 80
GB Estonia LLC Delaware 80
Pepsi-Cola General Bottlers Estonia U/O Estonia 80
GB International, Inc. Delaware 80
GB Latvia LLC Delaware 80
Pepsi-Cola General Bottlers Latvia LTD Latvia 80
GB Lithuania LLC Delaware 80
UBA Pepsi-Cola General Bottlers Lithuania 80
Genadco Advertising Agency, Inc Illinois 80
General Bottlers, Inc. Delaware 80
General Bottlers Sp.z o.o Poland 80
Iowa Vending, Inc. Delaware 80
Marquette Bottling Works, Inc. Michigan 80
General Bottlers Neva LLC Delaware 80
Neva Holdings LLC Delaware 80
GB Russia LLC Delaware 80
O.O.O. Pepsi-Cola General Bottlers Russia 80
Northern Michigan Vending, Inc. Michigan 80
PCGB, Inc. Illinois 80
Pepsi-Cola General Bottlers of Wisconsin, Inc. Wisconsin 80
Pepsi-Cola General Bottlers of Indiana, Inc. Delaware 80
Pepsi-Cola General Bottlers of Iowa, Inc. Iowa 80
Pepsi-Cola General Bottlers of Ohio, Inc. Delaware 80
Pepsi-Cola General Bottlers of Princeton, Inc. West Virginia 80
Pepsi-Cola General Bottlers of Virginia, Inc. Virginia 80
IC Equities, Inc. Delaware 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
Whitman Insurance Co., Ltd. Bermuda 100
Whitman Leasing, Inc. Delaware 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 Statement Nos.
33-58209 and 333-16355 on Forms S-3, Registration Statement No. 33-62113 on Form
S-4 and Registration Statement Nos. 333-53883, 33-65006, 33-28238 and 33-53427
on Forms S-8 of Whitman Corporation of our report dated January 25, 1999,
relating to the consolidated balance sheets of Whitman Corporation and
subsidiaries as of the end of fiscal years 1998 and 1997 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the fiscal years 1998, 1997 and 1996 which report appears in this annual
report on Form 10-K.
/s/ KPMG LLP
Chicago, Illinois
March 29, 1999
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, FRANK T. WESTOVER and MARTIN M.
ELLEN, 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 January 2, 1999, 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.
Date Date
------- -------
/s/ Bruce S. Chelberg 3/15/99 /s/ Archie R. Dykes 3/17/99
- ----------------------- -----------------------
Bruce S. Chelberg Archie R. Dykes
/s/ Martin M. Ellen 3/15/99 /s/ Charles W. Gaillard 3/16/99
- ------------------------ -----------------------
Martin M. Ellen Charles W. Gaillard
/s/ Herbert M. Baum 3/16/99 /s/Jarobin Gilbert, Jr. 3/16/99
- ------------------------ -----------------------
Herbert M. Baum Jarobin Gilbert, Jr.
/s/ Richard G. Cline 3/16/99
- ------------------------ ------------------------
Richard G. Cline Victoria B. Jackson
/s/ Pierre S. DuPont 3/18/99 /s/ Charles S. Locke 3/16/99
- ------------------------ ------------------------
Pierre S. DuPont Charles S. Locke
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
WHITMAN CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000049573
<NAME> WHITMAN CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 147,600
<SECURITIES> 0
<RECEIVABLES> 173,900
<ALLOWANCES> 3,200
<INVENTORY> 80,000
<CURRENT-ASSETS> 429,100
<PP&E> 1,006,500
<DEPRECIATION> 507,200
<TOTAL-ASSETS> 1,569,300
<CURRENT-LIABILITIES> 233,200
<BONDS> 603,600
0
0
<COMMON> 499,800
<OTHER-SE> (173,400)
<TOTAL-LIABILITY-AND-EQUITY> 1,569,300
<SALES> 1,635,000
<TOTAL-REVENUES> 1,635,000
<CGS> 1,024,500
<TOTAL-COSTS> 1,431,200<F1>
<OTHER-EXPENSES> 15,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,100<F2>
<INCOME-PRETAX> 152,200
<INCOME-TAX> 69,700
<INCOME-CONTINUING> 62,500<F3>
<DISCONTINUED> (500)
<EXTRAORDINARY> (18,300)
<CHANGES> 0
<NET-INCOME> 43,700
<EPS-PRIMARY> 0.43<F4>
<EPS-DILUTED> 0.42<F5>
<FN>
<F1>
TOTAL COSTS INCLUDE COST OF GOODS SOLD, S,G&A EXPENSES AND AMORTIZATION EXPENSE
OF $1,024,500, $391,100 AND $15,600, RESPECTIVELY.
<F2>
INTEREST EXPENSE, NET, INCLUDES INTEREST EXPENSE, INTEREST INCOME FROM HUSSMANN
INTERNATIONAL, INC. ("HUSSMANN") AND MIDAS, INC.("MIDAS") AND OTHER INTEREST
INCOME OF $46,400, $1,600 AND $8,700, 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 (LOSS)
FROM DISCONTINUED OPERATIONS.
<F3>
INCOME FROM CONTINUING OPERATIONS IS REDUCED BY MINORITY INTEREST OF $20,000.
<F4>
BASIC EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.62
DISCONTINUED OPERATIONS (0.01)
EXTRAORDINARY LOSS (0.18)
NET INCOME $ 0.43
<F5>
DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.61
DISCONTINUED OPERATIONS (0.01)
EXTRAORDINARY LOSS (0.18)
NET INCOME $ 0.42
</FN>
</TABLE>
