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2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000.
[ ] 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 001-15019
PEPSIAMERICAS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-6167838
- ----------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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, $0.01 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock, $0.01 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 2001, the aggregate market value of the registrant's
common stock held by non-affiliates was $2,521.6 million. The number of shares
of common stock outstanding at that date was 156,041,966 shares.
Information required by Part III of this document is incorporated by
reference to specified portions of the registrant's proxy statement to be
distributed in connection with its 2001 Annual Meeting of Shareholders.
PART I
Item 1. Business.
General
On November 30, 2000, Whitman Corporation acquired PepsiAmericas, Inc. (the
"former PAS") and subsequently, in January, 2001, changed its name to
PepsiAmericas, Inc. ("PAS" or the "Company"). See Note 2 to the Consolidated
Financial Statements. The Company manufactures, packages, sells and distributes
carbonated and non-carbonated Pepsi-Cola beverages and a variety of other
beverages in the United States, Central Europe and the Caribbean. In connection
with the acquisition of the former PAS, the Company expanded its distribution
rights to portions of Arkansas, Louisiana, Minnesota, Mississippi, North Dakota,
South Dakota, Tennessee, Texas and further territories in Iowa, as well as
Puerto Rico, Jamaica and the Bahamas.
In May, 1999, the Company entered into a new business relationship with
PepsiCo, Inc. ("PepsiCo"). See Note 2 to the Consolidated Financial Statements.
As part of the new business relationship, the Company sold its franchises in
Marion, Virginia; Princeton, West Virginia and the St. Petersburg area of Russia
to PepsiCo. Territories acquired from or contributed by PepsiCo included
domestic franchises in Cleveland, Ohio; Dayton, Ohio; Indianapolis, Indiana; St.
Louis, Missouri and southern Indiana, and international franchises in Hungary,
the Czech Republic, Republic of Slovakia and Poland.
The Company accounts for about 21 percent of all Pepsi-Cola products sold
in the U.S. It serves a significant portion of an eighteen state region,
primarily in the Midwest, and outside the U.S. the Company serves in Central
European and Caribbean markets, including Poland, Hungary, the Czech Republic,
Republic of Slovakia, Puerto Rico, Jamaica, the Bahamas, and Trinidad and
Tobago. The Company serves a total population of more than 117 million people.
As a result of the new business relationship in 1999 and the acquisition of
the former PAS in 2000, PepsiCo holds, directly and indirectly, 36.8 percent of
the Company's outstanding common stock as of fiscal year end 2000.
The Company sells a variety of brands that it bottles under licenses from
PepsiCo or PepsiCo joint ventures. In some territories, the Company
manufactures, packages, sells and distributes products under brands licensed by
companies other than PepsiCo, and in some territories the Company distributes
its own brands, such as the Toma brands in the Czech Republic. See "Products and
Packaging."
While the Company manages all phases of its operations, including pricing
of its products, the Company and PepsiCo exchange production, marketing and
distribution information, benefiting both companies' respective efforts to lower
costs, improve productivity and increase product sales.
The owners of beverage brands either manufacture and sell products
themselves or appoint bottlers to sell, distribute and, in some cases,
manufacture these products under license. Brand owners, such as PepsiCo,
generally own both the beverage trademarks and the secret formulas for the
concentrates, which they also manufacture and sell to their licensed bottlers.
Brand owners also develop new products and packaging for use by their bottlers.
Brand owners develop national marketing, promotion and advertising programs to
support their brands and brand image, and coordinate selling efforts with
respect to national fountain, supermarket and mass merchandising accounts. They
also provide local marketing support to their bottlers.
Bottlers, such as the Company, are generally responsible for manufacturing,
packaging, selling and distributing products under the brand names they license
from brand owners in their exclusive territories. For carbonated soft drink
products, the bottler combines soft drink concentrate with sweeteners and
carbonated water and packages this mixture in bottles or cans. Bottlers may also
have licenses to manufacture syrup for sale to fountain accounts. Under these
licenses, bottlers combine soft drink concentrate with sweeteners to manufacture
syrup for delivery to fountain customers. For non-carbonated beverages, the
bottler either manufactures and packages the beverages or purchases the
beverages in finished form and sells them through its distribution system.
1
The primary distribution channels for the retail sale of carbonated soft
drink products are supermarkets, mass merchandisers, vending machines,
convenience stores, gas stations, fountain channels, such as restaurants or
cafeterias, and other channels, such as small groceries, drug stores and
educational institutions. The largest channel in the United States is
supermarkets, but PAS's fastest growing channels have been mass merchandisers;
the cold drink channel, which includes sales through vending machines, coolers
and fountain equipment; and convenience stores and gas stations.
Depending upon the size of the bottler and the particular market, a bottler
delivers products through these channels using either a direct-to-store delivery
system or a warehouse distribution system. In its exclusive territories, each
bottler is responsible for selling products and providing timely service to its
existing customers and identifying and obtaining new customers. Bottlers are
also responsible for local advertising and marketing, as well as the execution
in their territories of national and regional selling programs instituted by
brand owners. The bottling business is capital intensive. Manufacturing
operations require specialized high-speed equipment, and distribution requires
extensive placement of fountain equipment and cold drink vending machines and
coolers, as well as investment in trucks and warehouse facilities.
Products and Packaging
The Company's portfolio of beverage products includes some of the best
recognized trademarks in the world. The Company's three largest brands in terms
of volume are Pepsi-Cola, Diet Pepsi and Mountain Dew. While the majority of the
Company's volume is derived from brands licensed from PepsiCo and PepsiCo joint
ventures, the Company also sells and distributes brands licensed from others, as
well as some of its own brands. The Company's principal beverage brands are
listed below:
Domestic Operations
- ---------------------------------------------------------------------------------------------------------------------------
Brands Licensed from PepsiCo
Brands Licensed from PepsiCo Joint Ventures Brands Licensed from Others
- ------------------------------------ ------------------------------------ -----------------------------------
Pepsi Lipton Iced Teas Dr Pepper
Diet Pepsi Starbucks Frappuccino Diet Dr Pepper
Mountain Dew Hawaiian Punch
Diet Mountain Dew Citrus Hill
Caffeine Free Pepsi Seven-Up
Caffeine Free Diet Pepsi Diet Seven-Up
Pepsi One Avalon
Wild Cherry Pepsi Sunny Delight
Sierra Mist Juice Tyme
Slice Seagram's
Mug Root Beer Nesbitt Lemonade
Aquafina Country Time
All Sport Crush
Fruit Works Squirt
Dole Sunkist
South Beach (Sobe) Canada Dry
Schweppes
Monarch
Yoo-Hoo
Klarbrunn
2
Central European Operations
- ---------------------------------------------------------------------------------------------------------------------------
Brands Licensed from PepsiCo Company-Owned Brands Brands Licensed from Others
- ------------------------------------ ------------------------------------ -----------------------------------
Pepsi Toma (carbonated soft drinks, Schweppes Sodas, Tonic and Water
Pepsi Max juices and waters) Dr Pepper
Pepsi Light Switezianka Water Canada Dry Ginger Ale
Mirinda Swezi Water Wesser Fruit Juices
Seven-Up Hortex Fruit Juices
Seven-Up Light Rauch Iced Tea and Fruit Juices
Kristalyviz Lipton Iced Teas
Aqua Minerale
Caribbean Operations
----------------------------------------------------------------------------------------
Brands Licensed from PepsiCo Brands Licensed from Others
----------------------------------- -----------------------------------
Pepsi Seven-Up**
DietPepsi Diet Seven-Up**
Caffeine Free Pepsi Juice Tyme
Caffeine Free Diet Pepsi Sunkist
Pepsi One Schweppes
Wild Cherry Pepsi Welch Foods Fruit Juice
Mountain Dew Canada Dry Ginger Ale
Diet Mountain Dew Cristalia Water
Mug Root Beer Coral Springs Water
Aquafina
Teem
Slice
Ting*
Mirinda
Desnoes & Geddes*
Junkanoo
* This brand is owned by PepsiCo in Jamaica but is owned by the Company
outside the Caribbean.
** Brand owned by Cadbury Schweppes in Puerto Rico and owned by PepsiCo
elsewhere in the Caribbean.
In addition to the above brands, the Company distributes beer products for
Miller Brewing Company, Heineken USA and other brewers or licensors through a
joint venture. In March 2001, the Company announced that it will sell its
interest in its beer business to the joint venture's minority partner. The
Company will retain sole ownership of the soft drink division of the joint
venture.
The Company's beverages are available in different package types, including
two-liter bottles; multi-pack and single serve offerings of one-liter, 20-ounce
and 24-ounce bottles; and multi-packs of 6, 12, and 24 cans. Syrup is also sold
in larger packages for fountain use.
Territories
The Company currently has the exclusive right to manufacture, sell and
distribute Pepsi-Cola beverages in all or a portion of eighteen states,
primarily in the Midwest, and in Poland, Hungary, the Czech Republic, Slovakia,
Puerto Rico, Jamaica, the Bahamas, Trinidad and Tobago.
Sales, Marketing and Distribution
The Company's business is seasonal and subject to weather conditions, which
have a significant impact on sales. The Company's sales and marketing approach
varies by region and channel to respond to the unique local competitive
environment. In the United States, the channels with larger stores can
accommodate a number of beverage suppliers and, therefore, marketing efforts
tend to focus on increasing the amount of shelf space and the number of displays
in any given outlet. In locations where the Company's products are purchased for
immediate consumption, marketing efforts are aimed not only at securing the
account but also on providing equipment that facilitates the sale of cold
product, such as vending machines, visi-coolers and fountain equipment.
3
Package mix is an important consideration in the development of the
Company's marketing plans. Although some packages are more expensive to produce,
in certain channels those packages may have higher and more stable selling
prices. For example, a packaged product that is sold cold for immediate
consumption generally has better margins than a product sold to take home. This
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 middleman and enables the Company to establish the
retail price. The Company owns a majority of the vending machines used to
dispense its products and will continue to invest in vending machines in the
near term, specifically those dispensing product in 20-ounce polyethylene
("PET") bottles.
In the United States, the Company distributes directly to a majority of
customers in the Company's licensed territories through a direct-to-store
distribution system. The Company's sales force is key to its selling efforts
because they interact continually with the Company's customers to promote and
sell its products. A large part of our route salespersons' compensation is made
up of commissions based on volumes. Although route salespeople are responsible
for selling to their customers, in some markets and channels, the Company uses a
pre-sell system, where the Company calls accounts in advance to determine how
much product and promotional material to deliver.
In the United States, this direct-to-store distribution system is used for
all packaged goods and some fountain accounts. The Company has the exclusive
right to sell and deliver fountain syrup to local customers in its territories.
The Company has a number of managers who are responsible for calling on
prospective fountain accounts, developing relationships, selling accounts and
interacting with accounts on an ongoing basis. The Company also serves as
PepsiCo's exclusive delivery agent in the Company's territories for PepsiCo's
national fountain account customers that request direct-to-store delivery. The
Company is also the exclusive equipment service agent for all of PepsiCo's
national account customers in the Company's territories.
In international markets, the Company uses both direct-to-store
distribution systems and third party distributors. In the less developed
international markets, small retail outlets play a larger role and represent a
large percentage of the market. However, with the emergence of larger, more
sophisticated retailers in Central Europe, the percentage of total soft drinks
sold to supermarkets and other larger accounts is increasing.
Franchise Agreements
The Company's franchise agreements with PepsiCo give the Company 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 agreements require the Company, 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. The Company
has similar arrangements with other companies whose brands it produces and
distributes. The franchise agreements outside the United States are also granted
in perpetuity, subject to certain performance criteria.
Advertising
The Company obtains the benefits of national advertising campaigns
conducted by PepsiCo and the other beverage companies whose products it sells.
The Company supplements PepsiCo's national ad campaign by purchasing advertising
in its local markets, including the use of television, radio, print and
billboards. The Company also makes extensive use of in-store point-of-sale
displays to reinforce the national and local advertising and to stimulate
demand.
Raw Materials and Manufacturing
Expenditures for concentrate and packaging constitute the Company's largest
individual raw material costs. The Company buys various soft drink concentrates
from PepsiCo and other soft drink companies and mixes them in the Company's
plants with other ingredients, including carbon dioxide and sweeteners.
Artificial sweeteners are included in the concentrates the Company purchases for
diet soft drinks. The product is then bottled in a variety of containers ranging
from 12-ounce cans to two-liter plastic bottles to various glass packages,
depending on market requirements.
4
In addition to concentrates, the Company purchases sweeteners, glass and
plastic bottles, cans, closures, syrup containers, other packaging materials and
carbon dioxide. The Company purchases all raw materials and supplies, other than
concentrates, from multiple suppliers.
A portion of the Company's contractual cost of cans, plastic bottles and
fructose is subject to price fluctuations based on commodity price changes in
aluminum, resin and corn, respectively. The Company uses derivative financial
instruments to hedge the price risk associated with anticipated purchases of
cans. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks.
The inability of suppliers to deliver concentrates or other products to the
Company 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 the Company could adversely impact the future availability of these
supplies.
Competition
The carbonated soft drink business is highly competitive. The Company's
principal competitors are bottlers who produce, package, sell and distribute
Coca-Cola carbonated soft drink products. In addition to Coca-Cola bottlers, the
Company competes with bottlers and distributors of nationally advertised and
marketed carbonated soft drink products, bottlers and distributors of regionally
advertised and marketed carbonated soft drink products, as well as bottlers of
private label carbonated soft drink products sold in chain stores. In 2000 the
carbonated soft drink products of PepsiCo represented approximately 32 percent
of total carbonated soft drink sales in the United States. The Company estimates
that in each United States territory in which the Company operates, between 65
percent and 85 percent of soft drink sales from supermarkets, drug stores and
mass merchandisers are accounted for by the Company and Coca-Cola bottlers. The
industry competes primarily on the basis of advertising to create brand
awareness, price and price promotions, retail space management, customer
service, consumer points of access, new products, packaging innovations and
distribution methods. The Company believes that brand recognition is a primary
factor affecting the Company's competitive position.
Employees
The Company employed approximately 15,400 people worldwide as of fiscal
year end 2000. This included approximately 10,500 active employees in its
domestic operations and approximately 4,900 people employed in its international
operations. Employment levels are subject to seasonal variations. The Company is
a party to collective bargaining agreements covering approximately 5,100
employees. Eleven agreements covering approximately 900 employees will be
renegotiated in 2001. The Company regards its employee relations as generally
satisfactory.
Government Regulation
The Company's operations and properties are subject to regulation by
various federal, state and local governmental entities and agencies as well as
foreign government entities. As a producer of food products, the Company is
subject to production, packaging, quality, labeling and distribution standards
in each of the countries where the Company has operations, including, in the
United States, those of the Federal Food, Drug and Cosmetic Act. The operations
of the Company's production and distribution facilities are subject to various
federal, state and local environmental laws and workplace regulations both in
the United States and abroad. These laws and regulations include, in the United
States, the Occupational Safety and Health Act, the Unfair Labor Standards Act,
the Clean Air Act, the Clean Water Act and laws relating to the maintenance of
fuel storage tanks. The Company believes that its current legal and
environmental compliance programs adequately address these concerns and that the
Company is in substantial compliance with applicable laws and regulations with
the exception of its operations in Puerto Rico and Jamaica, as described below.
In Puerto Rico, wastewater from the Company's bottling plant is discharged
pursuant to a permit to a collection and treatment system owned by the Puerto
Rico Aqueduct and Sewer Authority ("PRASA"). The former PAS previously entered
into a stipulation with PRASA which allowed the former PAS to discharge
wastewater in excess of pretreatment standards, for which the former PAS paid a
surcharge. In 1998, the former PAS applied to have the permit reissued. On
October 29, 1998, PRASA reissued the permit but without the excess wastewater
and surcharge provision. The Company is negotiating with PRASA regarding the new
permit and required effluent standards. If an agreement with PRASA cannot be
reached, the Company will be required to construct an on-site wastewater
treatment system. The cost of new treatment system may have a material adverse
effect on the Company's future financial performance in Puerto Rico.
5
In Jamaica, the Company is subject to the regulatory oversight of the
Ministry of Labor and Bureau of Standards. The Company is required to obtain and
maintain licenses relating to the safety and operation of its bottling plant in
Jamaica. The Company is currently in compliance with such requirements. In
addition, the Company is subject to the regulatory oversight of the National
Resources Conservation Authority ("NCRA"). A plan to reduce the discharge of
effluent from the Company's bottling plant has been submitted to the NCRA. The
NCRA requires the Company to monitor wastewater discharge and submit relevant
periodic data to the NCRA. Although levels of effluent discharge are currently
in excess of the NCRA's Trade Effluent Standards, no penalties or fines have
been incurred to date. If an agreement with the NCRA cannot be reached with
respect to wastewater discharge, the NCRA may require the Company to construct a
water treatment facility, the cost of which may have a material adverse effect
of the Company's future financial performance in Jamaica. The cost of any such
treatment facility would be shared by a bottler operating on the property
contiguous to the Company's leased property in Jamaica.
Environmental Matters
The Company 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 the Company sold Pneumo Abex
Corporation in 1988 and a subsequent settlement agreement entered into with
Pneumo Abex in September, 1991, the Company 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 the Company is subject to some of these 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 the Company
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 had estimated that the cost of the remedial action necessary
to comply with an Amended ROD, issued in 1994, would 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. The Company expects to have substantially completed this remediation
effort in 2002. Additionally, in a lawsuit brought against other PRPs that did
not execute the Consent Decree, Pneumo Abex and the Company recovered
approximately $3.1 million in settlements relating to response costs at the
Portsmouth site. These recoveries were recorded prior to 1999.
Management believes that potential insurance recoveries will 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 the Company 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, the Company and Pneumo Abex achieved settlements with
several carriers, and although optimistic it will receive additional recoveries,
the Company is otherwise unable to predict the outcome of this litigation.
The Company has 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 cannot be determined. In the
opinion of management, based upon information currently available, the ultimate
resolution of these claims and litigation, including potential environmental
exposures, and considering amounts already accrued, should not have a material
effect on the Company's financial condition, although amounts recorded in a
given period could be material to the results of operations or cash flows for
that period.
6
Foward-Looking Statements
This annual report on Form 10-K contains certain forward-looking statements
that reflect 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; costs of legal proceedings;
outcomes of environmental claims and litigation; 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.
Item 2. Properties.
The Company's domestic manufacturing facilities include 3 bottling plants,
10 combination bottling/canning plants, 2 canning plants and one fountain plant
with a total manufacturing capacity of approximately 1.1 million square feet.
International manufacturing facilities include two owned plants in Poland, three
owned plants in Hungary, two owned plants in the Czech Republic, one owned plant
in the Republic of Slovakia, one owned plant in Puerto Rico, one leased plant in
Jamaica, one owned plant in the Bahamas and one owned plant in Trinidad. In
addition, the Company operates 103 distribution facilities in the U.S., 39
distribution facilities in Central Europe and 8 distribution facilities in the
Caribbean. Fifty-seven of the distribution facilities are leased and less than
eight percent of the Company's domestic 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. The Company
currently operates a fleet of approximately 6,500 vehicles in the U.S. and
approximately 2,500 vehicles internationally to service and support its
distribution system.
In addition, the Company owns various industrial and commercial real estate
properties in the United States. The Company also owns 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.
The Company 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 the Company's financial condition,
although amounts recorded in any given period could be material to the results
of operations or cash flows for that period.
See also "Environmental Matters" in Item 1.
7
Item 4. Submission of Matters to a Vote of Security Holders.
(a) November 30, 2000 Special Meeting of Shareholders.
(c) Matters voted upon.
Approval of the issuance of shares of the Company's common stock as
provided by the merger agreement with the former PAS.
The following votes were recorded with respect thereto:
Votes for 115,443,936
Votes against 5,856,268
Votes abstaining 531,856
------------
Total shares voted 121,832,060
===========
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 the Company's common stock and indicates the Company's
dividends for each quarterly period for the fiscal years 2000 and 1999.
Common Stock
----------------------------------
High Low Dividend
------- ------- --------
2000:
1st quarter $13.938 $10.688 $ --
2nd quarter 12.688 11.125 0.04
3rd quarter 15.125 11.563 --
4th quarter 16.375 11.000 --
1999:
1st quarter $24.938 $16.375 $0.05
2nd quarter 18.688 15.188 0.01
3rd quarter 19.563 14.000 0.01
4th quarter 15.063 12.188 0.01
There were 13,338 shareholders of record as of fiscal year end 2000.
8
Item 6. Selected Financial Data.
The following table presents summary operating results and other
information of the Company, 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 were recorded during the periods presented:
o In 2000, the Company recorded special charges of $21.7 million ($13.2
million after taxes) for employee related costs of $17.1 million in
connection with the merger with the former PepsiAmericas, as well as
charges of $4.6 million for the closure of one of its existing production
facilities to remove excess capacity.
o Income from discontinued operations in 2000 includes the reversal of prior
accruals resulting from certain insurance settlements for environmental
matters related to a former subsidiary, Pnuemo Abex, net of increased
environmental and related accruals.
o In 2000, the Company sold its operations in the Baltics and recorded a gain
of $2.6 million ($1.4 million after tax), which is reflected in "other
income (expense), net."
o In 1999, the Company recorded special charges of $27.9 million related to
staff reduction costs and non-cash asset write-downs, principally related
to the acquisition of the domestic and international territories from
PepsiCo (see Note 5 to the Consolidated Financial Statements). These
charges reduced domestic and international operating income by $7.3 million
and $20.6 million, respectively.
o In 1999, the Company entered into a contract for the sale of property in
downtown Chicago and recorded a charge of $56.3 million ($35.9 million
after tax) to reduce the book value of the property. This pretax charge is
reflected in "other income (expense), net."
o In 1999, the Company recorded a pretax gain of $13.3 million ($7.8 million
after tax and minority interest), related to the sale of franchises in
Marion, Virginia; Princeton, West Virginia and the St. Petersburg area of
Russia. This pretax gain is reflected in "other income (expense), net."
o Loss from discontinued operations after taxes of $51.7 million in 1999
includes after tax amounts related to a $12 million settlement of
environmental litigation filed against Pneumo Abex, as well as increases of
$69.8 million in accruals related to the indemnification obligation to
Pneumo Abex, primarily for environmental matters.
o 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 4 to the Consolidated Financial Statements).
o In 1997, the Company recorded special charges of $49.3 million ($31.6
million after tax and minority interest) related to the restructuring of
the Company'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 5 to the Consolidated Financial
Statements). These charges reduced domestic and international operating
income by $45.6 million and $3.7 million, respectively.
o In 1997, Hussmann and Midas, which are classified as discontinued
operations, recorded special charges with an after-tax cost of $93.4
million (see Note 3 to the Consolidated Financial Statements).
o In 1996, the Company recorded an $8.7 million charge, principally for asset
write-downs at the Company's joint venture in Poland, which is included in
"other expense, net."
Pro forma results are included for 2000. The pro forma results assume the
merger with the former PepsiAmericas occurred at the beginning of the year and
exclude non-recurring charges or credits recorded in 2000.
9
PepsiAmericas, Inc.
SELECTED FINANCIAL DATA
(in millions, except per share and employee data)
Pro Forma
For the fiscal years 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
(unaudited)
OPERATING RESULTS:
Sales:
Domestic $ 2,680.8 $ 2,242.8 $ 1,951.4 $ 1,534.0 $ 1,445.3 $ 1,436.4
International 424.1 284.8 186.8 83.5 93.5 50.3
---------- ---------- ---------- ---------- ---------- ----------
Total $ 3,104.9 $ 2,527.6 $ 2,138.2 $ 1,617.5 $ 1,538.8 $ 1,486.7
========== ========== ========== ========== ========== ==========
Operating income:
Domestic $ 300.5 $ 246.7 $ 228.3 $ 221.0 $ 148.9 $ 206.9
International (26.0) (23.7) (46.8) (17.2) (18.7) (12.1)
---------- ---------- ---------- ---------- ----------- ----------
Total 274.5 223.0 181.5 203.8 130.2 194.8
Interest expense, net (104.7) (84.0) (63.9) (36.1) (42.3) (41.5)
Other income (expense), net (1.6) 2.1 (46.0) (15.5) (18.0) (25.6)
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes
and minority interest 168.2 141.1 71.6 152.2 69.9 127.7
Income taxes 83.9 69.6 22.1 69.7 37.9 61.1
Minority interest -- -- 6.6 20.0 16.2 18.8
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations 84.3 71.5 42.9 62.5 15.8 47.8
Income (loss) from discontinued
operations after taxes 8.9 8.9 (51.7) (0.5) (11.7) 91.6
Extraordinary loss on early
extinguishment of debt after taxes -- -- -- (18.3) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 93.2 $ 80.4 $ (8.8) $ 43.7 $ 4.1 $ 139.4
========== ========== ========== ========== ========== ==========
Cash dividends per share $ 0.04 $ 0.04 $ 0.08 $ 0.20 $ 0.45 $ 0.41
========== ========== ========== ========== ========== ==========
Weighted average common shares:
Basic 156.6 139.0 123.3 101.1 101.6 104.8
Incremental effect of stock options 1.0 0.5 0.9 1.8 1.3 1.2
---------- ---------- ---------- ---------- ---------- ----------
Diluted 157.6 139.5 124.2 102.9 102.9 106.0
========== ========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.54 $ 0.51 $ 0.35 $ 0.62 $ 0.16 $ 0.46
Discontinued operations 0.06 0.07 (0.42) (0.01) (0.12) 0.87
Extraordinary loss on early debt
extinguishment -- -- -- (0.18) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.60 $ 0.58 $ (0.07) $ 0.43 $ 0.04 $ 1.33
========== ========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.53 $ 0.51 $ 0.35 $ 0.61 $ 0.15 $ 0.45
Discontinued operations 0.06 0.07 (0.42) (0.01) (0.11) 0.87
Extraordinary loss on early debt
extinguishment -- -- -- (0.18) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.59 $ 0.58 $ (0.07) $ 0.42 $ 0.04 $ 1.32
========== ========== ========== ========== ========== ==========
OTHER INFORMATION:
Total assets $ 3,335.6 $ 3,335.6 $ 2,864.3 $ 1,569.3 $ 2,029.7 $ 2,080.6
Long-term debt $ 860.1 $ 860.1 $ 809.0 $ 603.6 $ 604.7 $ 821.7
Capital investments $ 196.7 $ 165.4 $ 165.4 $ 159.1 $ 83.4 $ 87.2
Depreciation and amortization $ 194.2 $ 166.4 $ 126.6 $ 77.7 $ 73.8 $ 75.2
Number of employees 15,400 15,400 11,700 6,500 6,400 5,900
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Results - 2000 compared with 1999
Due to the transaction with the former PepsiAmericas, Inc. completed in
November 2000 and the transaction with PepsiCo completed in May 1999, the
Company believes that pro forma results provide a better indication of current
operating trends than reported results. Therefore, included within the following
discussion are explanations of both reported results and the pro forma results.
Pro forma operating results assume the acquisitions and divestitures, with
the exception of Trinidad and Tobago, as well as any related transactions,
completed in 1999 and 2000 occurred at the beginning of 1999. Pro forma
operating results also exclude the impact of special charges and other
non-recurring items recorded in either year.
Net Sales
Net sales for 2000 and 1999 were as follows (in millions):
Reported Pro Forma (unaudited)
---------------------- Percent --------------------- Percent
2000 1999 Change 2000 1999 Change
-------- --------- ------ -------- -------- ------
Domestic $2,242.8 $1,951.4 14.9 $2,680.8 $2,608.9 2.8
International 284.8 186.8 52.5 424.1 410.8 3.2
-------- -------- -------- --------
Total Sales $2,527.6 $2,138.2 18.2 $3,104.9 $3,019.7 2.8
======== ======== ======== ========
On a reported basis, net sales increased by $389.4 million, or 18.2
percent, in 2000 compared with 1999, primarily reflecting sales contributed by
the additional territories acquired in the transactions with the former
PepsiAmericas and PepsiCo, as well as the acquisition of Toma in December 1999.
The balance of the growth in net sales reflected improved pricing in the
domestic markets offset by a decline in volume.
On a pro forma basis, net sales increased by $85.2 million, or 2.8 percent.
The growth in net sales includes an increase in domestic sales of $71.9 million
and an increase in international sales of $13.3 million. The increase in
domestic sales resulted from improved pricing, up nearly five percent, offset by
a decline in volume, down 2.5 percent for the full year. Despite the decline in
volume, principally the result of volume declines in trademark Pepsi products,
Aquafina volume grew nearly 30 percent and lemon lime volume growth was
bolstered by the introduction of Sierra Mist. The higher international sales
resulted from improved volume, up 8.5 percent, offset by a decline in net
pricing, down 4.6 percent. The lower net pricing in international is indicative
of the currency devaluation impact in the Central European territories. The
impact of currency devaluation is estimated to have reduced sales by
approximately $32 million in 2000 compared with the previous year.
Gross Profit
The consolidated gross profit margin on a reported basis decreased to 40.9
percent of sales in 2000 compared with 41.6 percent of sales in 1999. The
domestic gross profit margin was essentially unchanged, while the international
gross profit margin declined due to the inclusion of lower margin Toma products
for the entire year in 2000 compared with only one month in 1999 and the
unfavorable impacts of foreign currency. A portion of the product costs in the
international operations is fixed in U.S. dollars and therefore was not
favorably affected by currency devaluation.
The consolidated gross profit margin on a pro forma basis decreased to 39.7
percent of sales in 2000 compared with 40.1 percent in 1999. The domestic gross
profit margin improved slightly, while the international gross profit margin
declined by 4.3 percentage points. The decline in the international gross profit
margin is due to a portion of the product costs in the international operations
being fixed in U.S. dollars as discussed previously.
11
Selling, Delivery and Administrative Expenses
Reported selling, delivery and administrative ("SD&A") expenses represented
29.6 percent of sales in 2000, compared with 30.4 percent in 1999. The decline
in the percentage of SD&A expenses is primarily attributable to the
international operations, which reflects the benefits of currency devaluation on
expenses as reported in U.S. dollars and the lower SD&A expenses incurred by the
Toma operations. On a reported basis, Toma was included for only one month in
1999 due to the acquisition being completed on December 1, 1999.
On a pro forma basis, SD&A expenses as a percent of sales were 29.2 percent
compared with 30.7 percent in 1999. The 150 basis point improvement was
primarily the result of the benefits from currency devaluation experienced in
Central Europe, which resulted in lower expenses as reported in U.S. dollars. In
addition, SD&A expenses in the domestic operations reflected the benefits of
cost reduction efforts begun in 1999 in domestic territories acquired from
PepsiCo.
Special Charges
In 2000, the Company recorded special charges of $21.7 million ($13.2
million after tax), including $17.1 million in costs for severance and other
benefits and $4.6 million of costs resulting from a decision to close the
Company's production facility in Ft. Wayne, Indiana. The charge for the closure
of the production facility included a write-down of building and equipment and
$0.5 million for severance payments and other benefits.
As a result of the actions taken with respect to the merger with the former
PepsiAmericas, which resulted in the charges recorded in 2000, the Company
expects to realize annual savings of approximately $16 million, primarily in
2002 and 2003. This includes reduced employee related costs in both the existing
territories and the territories acquired from the former PepsiAmericas and the
benefits of centralized procurement through PepsiCo. A portion of the charges
recorded in 2000 resulted from payments to former executives of the Company,
which will not result in future savings or benefits.
In 1999, the Company recorded special charges of $27.9 million ($19 million
after tax), including $9.6 million of staff reduction costs, principally related
to the acquisition of the domestic and international territories from PepsiCo;
$7.6 million of non-cash asset write-downs associated with the exit from the
plastic returnable package in the Company's existing international territories;
$5.9 million of other asset write-downs principally related to the acquisition
of the international territories from PepsiCo; and a $4.8 million write-down of
the investment in the Baltic operations resulting from the Company's decision to
seek the sale of those operations to a third party.
As a result of the actions taken resulting in the special charges of $27.9
million, the Company expected to realize approximately $18 to $20 million in
annual pretax savings, resulting principally from reductions in employee related
costs. A substantial portion of these savings was realized in the year 2000. In
1999 and 1998, the Baltics had sales of $6.1 million and $5.4 million,
respectively, and incurred operating losses of $1.8 million and $3.5 million,
respectively.
During 2000 and 1999, the Company paid employee benefits of $12.8 million
and $11.5 million, respectively. These benefits related to charges recorded in
1997, 1999 and 2000, which included the elimination of approximately 170
positions, 310 positions and 50 positions, respectively. The payments made
during 2000 and 1999 included deferred severance payments made to previously
terminated employees. At the end of fiscal year 2000, $17.4 million of employee
related costs were accrued. The Company expects to pay substantially all of
these costs during the next twelve months and has included them in current
liabilities.
Operating Income
Operating income for 2000 and 1999 was as follows (in millions):
Reported Pro Forma (unaudited)
---------------------- Percent --------------------- Percent
2000 1999 Change 2000 1999 Change
-------- --------- ------ -------- -------- ------
Domestic $ 246.7 $ 228.3 8.1 $ 300.5 $ 274.6 9.4
International (23.7) (46.8) 49.4 (26.0) (38.3) 32.1
-------- -------- -------- --------
Total Operating Income $ 223.0 $ 181.5 22.9 $ 274.5 $ 236.3 16.2
======== ======== ======== ========
12
In 2000, operating income on a reported basis increased $41.5 million,
which primarily reflects the additional operating income contributed by the
domestic territories acquired in 1999. The reported domestic operating income
included special charges of $21.7 million and $7.3 million in 2000 and 1999,
respectively. Excluding these charges, the domestic operating income increased
$32.8 million, or 13.9 percent. The operating income contributed by the acquired
territories is primarily responsible for the improved results. The operating
losses in 1999 reported by the international operations included special charges
of $20.6 million. Excluding the impact of these charges, operating losses were
reduced by $2.5 million. The improved trend in operating losses was the result
of one month of operating results included for the Caribbean territories and
improved results in Central Europe, despite the adverse impact of currency
devaluation.
On a pro forma basis, operating income increased $38.2 million in 2000
compared with 1999. The improvement included an increase of $25.9 million in
operating income in the domestic operations and a $12.3 million reduction in
operating losses in the international operations. The improved results in the
domestic operations are principally the result of improved pricing in the
domestic markets, offset by lower volumes, and cost reduction efforts initiated
in the domestic territories acquired from PepsiCo. The domestic operating
margins improved 70 basis points to 11.2 percent in 2000. On a pro forma basis
in international, improvements occurred in both Central Europe and the
Caribbean. The improvements reflect lower operating costs in Central Europe and
improved gross profit margins in the Caribbean.
Interest and Other Expenses
Net interest expense increased $20.1 million in 2000 to $84 million. The
increase was due principally to an increase in the average outstanding net debt
resulting from the acquisitions completed during 1999 and 2000. In addition,
increases in interest rates on the Company's floating rate debt and the three
million shares of common stock repurchased in the first quarter of 2000
contributed to the increase in interest.
The Company reported other income of $2.1 million in 2000 compared with
other expense of $46 million in 1999. Included in other income in 2000 is a gain
of $2.6 million resulting from the sale of the franchise operations in the
Baltics, while other expense in 1999 included a $56.3 million charge recorded to
reduce the book value of non-operating real estate, as well as a $13.3 million
gain on the sale of franchise territories in connection with the transaction
completed with PepsiCo in 1999. Absent these items, other expense decreased to
$0.5 million in 2000 compared with $3 million in 1999. The decrease is not
attributed to any individually significant item.
Discontinued Operations
Income from discontinued operations after taxes of $8.9 million resulted
from the reversal of prior accruals resulting from certain insurance settlements
for environmental matters related to a former subsidiary, Pneumo Abex, net of
certain increased environmental and related accruals. Loss from discontinued
operations after taxes of $51.7 million in 1999 includes after-tax amounts
related to a $12 million settlement of environmental litigation filed against
Pneumo Abex, as well as increases of $69.8 million in accruals for other
environmental matters related to Pneumo Abex.
Environmental Liabilities
Environmental liabilities are discussed further in Note 16 to the
Consolidated Financial Statements and within "Discontinued Operations" above.
Operating Results - 1999 compared with 1998
Net Sales
Net Sales increased $520.7 million, or 32.2 percent, in 1999 to $2.1
billion. On a reported basis, domestic sales increased $417.4 million, or 27.2
percent, in 1999 compared with 1998, primarily reflecting the sales contributed
by the acquired territories and improved pricing. Reported international sales
increased by $103.3 million to $186.8 million due to sales contributed by the
newly acquired Central European territories.
13
Gross Profit
The consolidated gross profit margin on a reported basis increased to 41.6
percent of sales in 1999, compared with 40.1 percent of sales in 1998. This
increase principally reflected a 0.7 percentage point improvement in domestic
margins, driven by higher net selling prices and favorable channel mix,
partially offset by lower margin channel and package mix of the domestic
territories acquired in 1999. In addition, international margins were higher due
to improvements in Poland, as well as the absence, during most of 1999, of the
lower margin sales associated with the Russian operations which were sold in
March, 1999.
Selling, Delivery and Administrative Expenses
Reported SD&A expenses represented 30.4 percent of sales in 1999, compared
with 26.6 percent in 1998. This increase is due, in part, to higher depreciation
expense as a result of increases in capital spending; higher 1999 field
operating expenses to support the Company's cold bottle initiative; the higher
cost structure in the territories acquired in 1999; incremental Year 2000 system
remediation costs; costs to integrate the territories acquired in 1999; higher
insurance expense; and strike costs incurred in 1999. Amortization expense
increased by $13.7 million due to the transaction with PepsiCo completed in
1999.
Operating Income
In 1999, operating income decreased by $22.3 million, or 10.9 percent, to
$181.5 million compared with $203.8 million in 1998. The decrease reflected the
special charges recorded in 1999 of $27.9 million. Excluding these charges,
operating income increased $5.6 million, or 2.7 percent. Domestic operating
income increased $7.3 million, or 3.3 percent, reflecting operating income
contributed by the territories acquired in 1999, partially offset by special
charges, higher SD&A expenses and increased amortization expenses. Reported
international operating losses in 1999 include $20.6 million of special charges
resulting principally from the transaction with PepsiCo. Excluding these
charges, reported operating losses increased $9 million, or 52.3 percent, to
$26.2 million in 1999. The increase was principally attributable to operating
losses of the Central European territories acquired in 1999.
Interest and Other Expenses
Net interest expense increased $27.8 million to $63.9 million. The increase
was due principally to an increase in average outstanding net debt due to the
acquisitions completed in 1999 and share repurchase activity.
Other expense in 1999 of $46 million included the impairment charge on real
estate owned by the Company and the gain realized on the sale of franchise
territories to PepsiCo, as previously discussed. Absent these items, other
expense decreased to $3 million in 1999 compared with $15.5 million 1998, due
primarily to the termination of the management fee paid to PepsiCo and reduced
real estate taxes on non-operating land.
Discontinued Operations
The loss from discontinued operations in 1999, as previously discussed,
relates to the Company's indemnification obligation resulting from the sale of
Pneumo Abex, a former subsidiary. The loss from discontinued operations in 1998
of $0.5 million includes one month of results from former subsidiaries, Hussmann
and Midas, which were spun-off to shareholders 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.
Liquidity and Capital Resources
Net cash provided by continuing operations increased by $144.3 million to
$326.1 million in 2000. The increase was due primarily to the cash provided by
the securitization of receivables which contributed $150 million of cash flow.
Investing activities during 2000 included proceeds from the sale of the
franchises in the Baltics and $69.2 million paid for acquisitions, including the
transaction with the former PepsiAmericas and Trinidad and Tobago, and final
payments related to Toma. Investing activities in 1999 included $112 million of
net proceeds from the sale of the franchise territories in connection with the
PepsiCo transaction, as well as $134.6 million of net cash paid for certain
assets of domestic franchises contributed by PepsiCo, the Central European
franchises acquired from PepsiCo, and the acquisition of Toma. The Company made
capital investments of $159.7 million, net of proceeds from asset sales,
essentially unchanged from the capital expenditures, net of proceeds made in
1999. It is expected that capital spending in 2001, excluding potential
acquisitions, will be higher than 2000 levels due to the acquisitions completed
in 2000 and a full year of spending in those territories. However, the capital
spending as a percent of sales is expected to decline slightly.
14
The Company's total debt increased $191.1 million to $1,373.4 million as of
fiscal year end 2000, from $1,182.3 million as of fiscal year end 1999. The
increase principally resulted from debt of $316.9 million assumed in the
acquisition of the former PepsiAmericas. The additional debt assumed in that
transaction was offset by the benefit of the securitization of receivables,
which reduced short-term debt by $150 million. The Company repurchased 3 million
and 16.1 million shares of its common stock for $35.7 million and $290.1 million
in 2000 and 1999, respectively. The Company paid cash dividends of $5.5 million
in 2000 based on an annual cash dividend of $0.04, compared with $8.8 million
paid in 1999, based on a dividend rate of $0.05 in the first quarter and $0.01
in the last three quarters of 1999. The issuance of common stock, including
treasury shares, for the exercise of stock options resulted in cash inflows of
$27.1 million in 2000, compared with $3.2 million in 1999. The increase in cash
inflows in 2000 is due to shares issued to shareholders of the former
PepsiAmericas under the share subscription rights (see Note 2 to the
Consolidated Financial Statements).
The Company has a five-year revolving credit agreement with maximum
borrowings of $750 million. In addition, the Company has $750 million under its
commercial paper program. The revolving credit facility acts as a back-up for
the commercial paper program; accordingly, the Company has a total of $750
million available under the commercial paper program and revolving credit
facility combined. Total commercial paper borrowings and money market loans were
$438.2 million as of the end of fiscal year 2000. During February and March
2001, the Company issued $200 million and $150 million of notes with coupon
rates of 5.95 percent due 2006 and 5.79 percent due 2013, respectively. The
notes issued in March 2001 will be remarketed in March 2003, at which time the
notes will either be mandatorily tendered and purchased by the underwriter or
mandatorily redeemed by the Company. Proceeds from these notes were used to
repay outstanding commercial paper.
The Company believes that with its existing operating cash flows, available
lines of credit and potential for additional debt and equity offerings, the
Company will have sufficient resources to fund its future growth and expansion.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137
and 138, is applicable to the Company effective as of the beginning of fiscal
2001. SFAS No. 133 requires companies to record derivatives on the balance sheet
as assets and liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. The
Company will adopt SFAS No. 133, as amended, in the first quarter of 2001 and
expects to recognize an asset for the fair value of unsettled aluminum hedges.
The asset to be recognized is not significant.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and it is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral as of fiscal year end 2000. SFAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures which are included in Note 8 to the
Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Commodity Prices
The risk from commodity price changes correlates to the Company'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. In 1999, the Company began to use swap contracts to hedge price
fluctuations for a portion of its aluminum requirements. Each contract hedges
price fluctuations on a portion of the Company's aluminum can requirements over
a specified period of time. Because of the high correlation between aluminum
commodity prices and the Company's contractual cost of aluminum cans, the
Company considers these hedges to be highly effective. As of fiscal year end
2000, the Company has hedged a portion of its future aluminum requirements.
15
Interest Rates
During 2000, 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. The Company's floating rate exposure relates
to changes in the six month LIBOR rate and the overnight Federal Funds rate.
Assuming consistent levels of floating rate debt with those held as of fiscal
year end 2000, including the impact of additional fixed rate debt issued in
February 2001, a 50 basis point change in each of these rates would have an
impact of approximately $1.1 million on the Company's annual interest expense
related to its floating rate obligations. The Company has from time to time used
interest rate swaps and forward contracts to convert fixed rate debt to floating
rate debt and to lock interest rates on debt issues. In 2000, 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 the
overnight Federal Funds rate. Assuming a 50 basis points change in the rate of
interest associated with the Company's short-term investments, interest income
would not have changed by a significant amount.
Currency Exchange Rates
Because the Company operates in international franchise territories, it is
subject to exposure resulting from changes in currency exchange rates. Currency
exchange rates are influenced by 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 intercompany
loans from the manufacturing operations in Poland.
Non-U.S. operations are expected to represent about 15 percent of the
Company's total operations in 2001 and represented about 11 percent in 2000.
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 five percent in 2000, the Company
estimates the impact on reported operating income would have been approximately
$3 million. This estimate does not take into account the possibility that rates
can move in opposite directions and that gains in one category may or may not be
offset by losses from another category.
Item 8. Financial Statements and Supplementary Data.
See Index to Financial Information on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Whitman incorporates by reference the information contained under the
captions "Proposal 1: Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in its definitive proxy statement dated March
26, 2001, filed pursuant to Section 14(a) of the Securities Exchange Act of
1934, as amended.
The executive officers of Whitman and their ages as of February 1, 2001
were as follows:
Age Position
Robert C. Pohlad.................46 Vice Chairman and Chief Executive
Officer
Kenneth E. Keiser................48 President and Chief Operating
Officer, Domestic
Larry D. Young...................46 President and Chief Operating
Officer, International
John F. Bierbaum.................56 Executive Vice President, Investor
Relations and Corporate Growth
G. Michael Durkin, Jr............41 Senior Vice President and Chief
Financial Officer
Steven R. Andrews................48 Senior Vice President, Secretary
and General Counsel
The following is a brief description of the business background of each of
the Company's executive officers.
16
Mr. Pohlad became Chief Executive Officer of the Company on November 30,
2000 and was named Vice Chairman in January 2001. Mr. Pohlad served as Chairman
and Chief Executive Officer of the former PAS prior to the acquisition of the
former PAS, a position he had held since 1998. From 1987 to present, Mr. Pohlad
has also served as President of the Pohlad Companies. Prior to 1987, Mr. Pohlad
was Northwest Area Vice President of the Pepsi-Cola Bottling Group.
Mr. Keiser became President and Chief Operating Officer, Domestic of the
Company on November 30, 2000. Mr. Keiser served as President and Chief Operating
Officer of the former PAS prior to the acquisition of the former PAS, a position
he had held since 1998. Mr. Keiser was President and Chief Operating Officer of
Delta, a wholly-owned subsidiary of the former PAS, from 1990 to November 30,
2000.
Mr. Young has been with the Company since 1984. He served as Vice President
and Managing Director of the Company's operations in Poland in 1996 and later
that year became President of the Company's Central Europe operations. He became
Executive Vice President and Chief Operating Officer in 1998. In February 2000,
Mr. Young was elected to the position of President and Chief Operating Officer.
In connection with the acquisition of the former PAS in November 2000, Mr. Young
was named President and Chief Operating Officer, International.
Mr. Bierbaum has served as Executive Vice President, Investor Relations and
Corporate Growth of the Company since November 2000. Mr. Bierbaum served as
Chief Financial Officer of the former PAS from July 1998 to November 2000. Mr.
Bierbaum was a director (from 1993 to November 2000) and Chief Financial Officer
of Delta (from 1988 to November 2000). Mr. Bierbaum was also Chief Financial
Officer of the Pohlad Companies, a holding and management services company,
which had a beneficial ownership interest in and provided management services to
the former PAS. Mr. Bierbaum has been associated with the Pohlad Companies since
1975 in a variety of capacities, including his current position.
Mr. Durkin has served as Senior Vice President and Chief Financial Officer
since November 2000. Prior to November, Mr. Durkin served as Senior Vice
President and General Manager, Eastern Group, for the Company. Prior to this
position, Mr. Durkin was Vice President, Customer Development of PepsiCo's
Heartland Business Unit, which was acquired by the Company from PepsiCo in 1999.
Mr. Andrews joined the Company as Senior Vice President, Secretary and
General Counsel in May, 1999. Prior to joining the Company, Mr. Andrews was the
acting President and Chief Executive Officer of Multigraphics, Inc. in Mt.
Prospect, Illinois (formerly AM International, Inc.), a distributor and service
provider to the U.S. graphic arts market. Prior to that, he had served since
1994 as Multigraphics, Inc.'s Vice President, General Counsel and Secretary.
Item 11. Executive Compensation.
The Company incorporates by reference the information contained under the
captions "Executive Compensation" and "Director Compensation" in its definitive
proxy statement dated March 26, 2001, filed pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Company incorporates by reference the information contained under the
captions "Our Largest Shareholders" and "Shares Held by Our Directors and
Executive Officers" in its definitive proxy statement dated March 26, 2001,
filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended.
Item 13. Certain Relationships and Related Transactions.
The Company incorporates by reference the information contained under the
caption "Certain Relationships and Related Transactions" in its definitive proxy
statement dated March 26, 2001, filed pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) See Index to Financial Information on page F-1 and Exhibit Index
following the Notes to Consolidated Financial Statements.
(b) On December 1, 2000, the Company filed a current report which, under
Item 2, described the completion of the merger between the Company
and the former PepsiAmericas. The current report also included, under
Item 7, various exhibits including Amended and Restated Bylaws of the
Company.
17
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 27th day of
March, 2001.
PEPSIAMERICAS, INC.
By: /s/ G. MICHAEL DURKIN, JR.
---------------------------
G. Michael Durkin, Jr.
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 27th day of March, 2001.
Signature Title
* Robert C. Pohlad Vice Chairman and Chief
------------------------- Executive Officer and Director
ROBERT C. POHLAD (principal executive officer)
/s/ G. Michael Durkin, Jr. Senior Vice President and Chief Financial
------------------------- Officer
G. MICHAEL DURKIN, JR. (principal financial and accounting officer)
* Herbert M. Baum Director
-------------------------
HERBERT M. BAUM
* Richard G. Cline Director *By: /s/ G. MICHAEL DURKIN, JR.
------------------------- --------------------------
RICHARD G. CLINE G. Michael Durkin, Jr.
Attorney-in-Fact
* Pierre S. duPont Director March 27, 2001
-------------------------
PIERRE S. du PONT
* Archie R. Dykes Director
-------------------------
ARCHIE R. DYKES
* Charles W. Gaillard Director
-------------------------
CHARLES W. GAILLARD
* Jarobin Gilbert, Jr. Director
-------------------------
JAROBIN GILBERT, JR.
* Victoria B. Jackson Director
-------------------------
VICTORIA B. JACKSON
* Matthew M. McKenna Director
-------------------------
MATTHEW M. MCKENNA
* Robert F. Sharpe, Jr. Director
-------------------------
ROBERT F. SHARPE, JR.
18
PEPSIAMERICAS, INC. AND SUBSIDIARIES
----------------------
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR 2000
PEPSIAMERICAS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Page
Statement of Financial Responsibility F-2
Report of Independent Auditors F-3
Consolidated Statements of Income for the fiscal years 2000, 1999 and 1998 F-4
Consolidated Balance Sheets as of fiscal year end 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the fiscal years 2000, 1999
and 1998 F-7
Consolidated Statements of Shareholders' Equity for the fiscal years
2000, 1999 and 1998 F-8
Notes to Consolidated Financial Statements F-9
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.
F-1
STATEMENT OF FINANCIAL RESPONSIBILITY
The consolidated financial statements of PepsiAmericas, Inc. and
subsidiaries have been prepared by management, which is responsible for their
integrity and content. These statements have been prepared in accordance with
accounting principles generally accepted in the United States of America 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 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 the Company's 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 auditing standards
generally accepted in the United States of America. Their report appears on page
F-3.
F-2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
of PepsiAmericas, Inc.:
We have audited the accompanying consolidated balance sheets of
PepsiAmericas, Inc. and subsidiaries as of the end of fiscal years 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the fiscal years 2000, 1999 and 1998. 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 auditing standards generally
accepted in the United States of America. 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
PepsiAmericas, Inc. and subsidiaries as of the end of fiscal years 2000 and 1999
and the results of their operations and their cash flows for each of the fiscal
years 2000, 1999 and 1998 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
January 31, 2001
F-3
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Fiscal years 2000 1999 1998
----------- ----------- -----------
Sales $ 2,527.6 $ 2,138.2 $ 1,617.5
Cost of goods sold 1,494.2 1,248.7 968.5
----------- ----------- -----------
Gross profit 1,033.4 889.5 649.0
Selling, delivery and administrative expenses 747.7 650.8 429.6
Amortization expense 41.0 29.3 15.6
Special charges 21.7 27.9 --
----------- ----------- -----------
Operating income 223.0 181.5 203.8
Interest expense, net (84.0) (63.9) (36.1)
Other income (expense), net 2.1 (46.0) (15.5)
----------- ----------- -----------
Income before income taxes and minority interest 141.1 71.6 152.2
Income taxes 69.6 22.1 69.7
Minority interest -- 6.6 20.0
----------- ----------- -----------
Income from continuing operations 71.5 42.9 62.5
Income (loss) from discontinued operations after taxes 8.9 (51.7) (0.5)
Extraordinary loss on early extinguishment of debt after taxes -- -- (18.3)
----------- ----------- -----------
Net income (loss) $ 80.4 $ (8.8) $ 43.7
=========== =========== ===========
Weighted average common shares:
Basic 139.0 123.3 101.1
Incremental effect of stock options 0.5 0.9 1.8
----------- ----------- -----------
Diluted 139.5 124.2 102.9
=========== =========== ===========
Income (loss) per share - basic:
Continuing operations $ 0.51 $ 0.35 $ 0.62
Discontinued operations 0.07 (0.42) (0.01)
Extraordinary loss on early extinguishment of debt -- -- (0.18)
----------- ----------- -----------
Net income (loss) $ 0.58 $ (0.07) $ 0.43
=========== =========== ===========
Income (loss) per share - diluted:
Continuing operations $ 0.51 $ 0.35 $ 0.61
Discontinued operations 0.07 (0.42) (0.01)
Extraordinary loss on early extinguishment of debt -- -- (0.18)
----------- ----------- -----------
Net income (loss) $ 0.58 $ (0.07) $ 0.42
=========== =========== ===========
Cash dividends per share $ 0.04 $ 0.08 $ 0.20
=========== =========== ===========
The following notes are an integral part of these statements.
F-4
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions)
As of fiscal year end 2000 1999
----------- -----------
ASSETS:
Current assets:
Cash and equivalents $ 51.2 $ 114.5
Receivables, net of allowance of $13.1 million - 2000 and $8.2 million - 1999 203.0 265.1
Inventories:
Raw materials and supplies 81.3 54.2
Finished goods 82.7 57.9
----------- -----------
Total inventories 164.0 112.1
Other current assets 58.8 46.3
----------- -----------
Total current assets 477.0 538.0
----------- -----------
Investments 48.4 47.9
Property (at cost):
Land 40.4 30.6
Buildings and improvements 302.2 253.7
Machinery and equipment 1,304.2 1,100.2
----------- -----------
Total property 1,646.8 1,384.5
Accumulated depreciation (642.1) (552.8)
----------- -----------
Net property 1,004.7 831.7
----------- -----------
Intangible assets, net of accumulated amortization of $203.6 million - 2000
and $168.0 million - 1999 1,740.7 1,416.3
Other assets 64.8 30.4
----------- -----------
Total assets $ 3,335.6 $ 2,864.3
=========== ===========
The following notes are an integral part of these statements.
F-5
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
As of fiscal year end 2000 1999
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt $ 513.3 $ 373.3
Payables 199.1 194.7
Accrued expenses:
Salaries and wages 50.2 36.6
Interest 17.0 16.8
Other 107.4 117.7
----------- -----------
Total current liabilities 887.0 739.1
----------- -----------
Long-term debt 860.1 809.0
Deferred income taxes 47.0 71.1
Other liabilities 88.1 102.9
Minority interest 3.9 --
Shareholders' equity:
Preferred stock ($0.01 par value, 12.5 million shares authorized; no shares issued) -- --
Common stock ($0.01 par value, 350.0 million shares authorized; 167.3 million
shares issued) 1,546.8 1,634.4
Retained income 151.6 76.7
Accumulated other comprehensive loss:
Cumulative translation adjustment (30.3) (24.4)
Unrealized investment gain 1.6 2.1
----------- -----------
Accumulated other comprehensive loss (28.7) (22.3)
----------- -----------
Treasury stock (11.7 million shares - 2000 and 28.2 million shares - 1999) (220.2) (546.6)
----------- -----------
Total shareholders' equity 1,449.5 1,142.2
----------- -----------
Total liabilities and shareholders' equity $ 3,335.6 $ 2,864.3
=========== ===========
The following notes are an integral part of these statements.
F-6
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Fiscal years 2000 1999 1998
---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 71.5 $ 42.9 $ 62.5
Adjustments to reconcile to net cash provided by operating activities
of continuing operations:
Depreciation and amortization 166.4 126.6 77.7
Deferred income taxes 14.7 (44.5) 23.7
Gain on sale of franchises (1.4) (7.8) --
Special charges and real estate impairment 21.7 84.2 --
Cash outlays related to special charges (12.8) (11.5) (24.4)
Other 0.6 7.2 13.4
Changes in assets and liabilities, exclusive of acquisitions and divestitures
Decrease (increase) in receivables 127.6 (44.5) (39.0)
Decrease (increase) in inventories (9.5) 9.6 (10.1)
Increase (decrease) in payables (21.9) 22.6 40.5
Net change in other assets and liabilities (30.8) (3.0) 25.5
---------- ---------- ----------
Net cash provided by operating activities of continuing operations 326.1 181.8 169.8
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of franchises, net of cash divested 2.5 112.0 --
Franchises and companies acquired, net of cash acquired (69.2) (134.6) --
Dividends from and settlement of intercompany indebtedness with
Hussmann and Midas prior to spin-offs -- -- 434.3
Capital investments (165.4) (165.4) (159.1)
Proceeds from sales of property 5.7 4.5 3.7
Purchases of investments -- -- (18.2)
Proceeds from sales of investments and joint ventures 0.3 8.2 23.1
---------- ---------- ----------
Net cash (used in) provided by investing activities (226.1) (175.3) 283.8
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of short-term debt 137.0 (14.4) (1.5)
Proceeds from issuance of long-term debt -- 298.0 --
Repayment of long-term debt (263.0) -- (311.2)
Issuance of common stock 27.1 3.2 21.4
Treasury stock purchases (35.7) (290.1) (37.7)
Cash dividends (5.5) (8.8) (20.2)
---------- ---------- ----------
Net cash used in financing activities (140.1) (12.1) (349.2)
---------- ---------- ----------
Net cash used in discontinued operations (22.7) (26.1) (8.7)
Effects of exchange rate changes on cash and equivalents (0.5) (1.4) (0.5)
---------- ---------- ----------
Change in cash and equivalents (63.3) (33.1) 95.2
Cash and equivalents at beginning of year 114.5 147.6 52.4
---------- ---------- ----------
Cash and equivalents at end of year $ 51.2 $ 114.5 $ 147.6
========== ========== ==========
The following notes are an integral part of these statements.
F-7
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions)
Accumulated
Common Stock Other Treasury Stock Total
----------------- Retained Comprehensive ------------------- Shareholders'
Shares Amount Income Loss Shares Amount Equity
------ -------- -------- ------------- ------ ------- -------------
As of fiscal year end 1997 111.7 $ 478.2 $ 363.4 $ (78.6) (10.6) $(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
--------
Total comprehensive income 49.5
Treasury stock purchases (2.0) (37.7) (37.7)
Stock compensation plans 1.6 23.9 2.6 0.3 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 113.3 499.8 94.3 (8.6) (12.3) (259.1) 326.4
------ -------- -------- ------- ------ ------- --------
Comprehensive loss:
Net loss (8.8) (8.8)
--------
Other comprehensive loss:
Translation adjustments (12.4) (12.4)
Unrealized investment loss (net of
tax benefit of $0.7 million) (1.3) (1.3)
--------
Other comprehensive loss (13.7)
--------
Total comprehensive loss (22.5)
Treasury stock purchases (16.1) (290.1) (290.1)
Common stock issued for acquisitions 54.0 1,134.0 1,134.0
Stock compensation plans 0.6 0.2 2.6 3.2
Dividends declared (8.8) (8.8)
------ -------- -------- ------- ------ ------- --------
As of fiscal year end 1999 167.3 1,634.4 76.7 (22.3) (28.2) (546.6) 1,142.2
------ -------- -------- ------- ------ ------- --------
Comprehensive income:
Net income 80.4 80.4
--------
Other comprehensive loss:
Translation adjustments (5.9) (5.9)
Unrealized investment loss (net of
tax benefit of $0.3 million) (0.5) (0.5)
--------
Other comprehensive loss (6.4)
--------
Total comprehensive income 74.0
Treasury stock purchases (3.0) (35.7) (35.7)
Common stock issued for acquisition (80.4) 17.4 327.3 246.9
Common stock issued under stock
subscription rights and value of rights (5.9) 1.7 32.1 26.2
Stock compensation plans (1.3) 0.4 2.7 1.4
Dividends declared (5.5) (5.5)
------ -------- -------- ------- ------ ------- --------
As of fiscal year end 2000 167.3 $1,546.8 $ 151.6 $ (28.7) (11.7) $(220.2) $1,449.5
====== ======== ======== ======= ====== ======= ========
The following notes are an integral part of these statements.
F-8
PepsiAmericas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION. On November 30, 2000, Whitman Corporation acquired
PepsiAmericas, Inc. (the "former PAS") and subsequently, in January, 2001,
changed its name to PepsiAmericas, Inc. ("PAS"). The consolidated financial
statements, which are comprised of all subsidiaries, include the results of
operations of the former Whitman Corporation for all periods and of the former
PAS from the date of its acquisition. All amounts included in the Notes to
Consolidated Financial Statements pertain to continuing operations except where
otherwise noted. See further discussion in Note 3.
NATURE OF OPERATIONS. The Company manufactures, packages, sells and distributes
carbonated and non-carbonated Pepsi-Cola beverages and a variety of other
beverages in the United States, Central Europe and the Caribbean. The Company
operates under exclusive franchise agreements with soft drink concentrate
producers, including "master" bottling and fountain syrup agreements with
PepsiCo, Inc. ("PepsiCo") for the manufacture, packaging, sale and distribution
of PepsiCo branded products. There are similar agreements with Cadbury Schweppes
and other brand owners. The franchise agreements exist in perpetuity and contain
operating and marketing commitments and conditions for termination. The Company
also distributes alcoholic beverages (primarily Miller Brewing Company and
Heineken brands) in a limited number of its territories pursuant to distributor
agreements that contain provisions regarding the distribution and sale of
alcoholic beverages.
USE OF ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and use assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from the reported results.
FISCAL YEAR. The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to December 31. The Company's 2000, 1999 and 1998 fiscal years,
each containing 52 weeks, ended December 30, 2000, January 1, 2000 and January
2, 1999.
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. In the second quarter of 1999, the Company entered
into an agreement for the sale of this property and recorded a charge of $56.3
million ($35.9 million after tax) to reduce the book value of the property. This
charge is reflected in other income (expense), net, on the Consolidated
Statements of Income. The close of the sale is subject to the buyer obtaining
zoning approval and financing. All other investments in real estate are carried
at cost, which management believes is lower than net realizable value.
DERIVATIVE FINANCIAL INSTRUMENTS. Due to fluctuations in the market prices for
aluminum, the Company uses derivative financial instruments to hedge the price
risk associated with anticipated aluminum can purchases, the prices of which are
indexed to aluminum market prices. Realized gains and losses on aluminum hedge
contracts are deferred until the related finished products are sold. The Company
has also from time to time used derivative financial instruments to lock
interest rates on debt issues and to convert fixed rate debt to floating rate
debt. There were no such instruments outstanding as of fiscal year end 2000 or
1999.
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 income (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 eight percent to 20 percent for machinery and
equipment.
F9
INTANGIBLE ASSETS. Intangible assets principally represent franchise rights,
which are the excess of cost over fair market values of net tangible and
identifiable intangible assets of acquired businesses. Such amounts generally
are being amortized on a straight-line basis over 40 years. The principal
factors considered in determining the use of a 40-year amortization period
include: 1) the franchise agreements with PepsiCo and other brand owners are
granted in perpetuity and provide the exclusive right to manufacture and sell
the branded products within the territories prescribed in the agreements, and 2)
the existing and projected cash flows are adequate to support the carrying
values of intangible assets. 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, based on projected discounted cash flows, and the carrying value.
REVENUE RECOGNITION. Revenue is recognized when title to a product is
transferred to the customer. Payments made to third parties as commissions
related to vending activity are recorded as a reduction of revenues.
BOTTLER INCENTIVES. PepsiCo and other brand owners, at their sole discretion,
provide the Company 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-related programs and shared media
and advertising support. Based on the objectives of the programs and
initiatives, domestic marketing support is recorded as an adjustment to net
sales or a reduction of selling, delivery and administrative expenses. Direct
marketplace support is primarily the funding of sales discounts and similar
programs by PepsiCo and other brand owners and is recorded as an adjustment to
net sales. Capital equipment-related program funding is designed to support
marketing equipment programs and is recorded within selling, delivery and
administrative expenses. Shared media and advertising support is recorded as a
reduction to advertising and marketing expense within selling, delivery and
administrative expenses. Support in the Company's Central European operations is
primarily recorded as a reduction in cost of goods sold. There are no conditions
or other requirements which could result in repayment of marketing support
received.
ADVERTISING AND MARKETING COSTS. The Company is involved in a variety of
programs to promote its products. Advertising and marketing costs are expensed
in the year incurred. Certain advertising and marketing costs incurred by the
Company are reimbursed by PepsiCo and other brand owners in the form of
marketing support. Advertising and marketing expenses were $45.4 million, $32.2
million and $24.2 million in 2000, 1999 and 1998, respectively. These amounts
are net of support of $30.5 million, $37.7 million and $22 million in 2000, 1999
and 1998, respectively.
STOCK-BASED COMPENSATION. The Company uses the intrinsic value method of
accounting for its stock-based compensation.
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 and warrants which are dilutive, whether
exercisable or not. The dilutive effects of stock options and warrants are
measured under the treasury stock method.
Options and warrants to purchase 8,708,974 shares, 3,757,844 shares and 111,000
shares at an average price of $18.23, $20.83 and $20.83 per share that were
outstanding at the end of fiscal 2000, 1999 and 1998, respectively, were not
included in the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In June, 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended by SFAS Nos. 137 and 138, is applicable to
the Company effective as of the beginning of fiscal 2001. SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company will adopt SFAS No.
133, as amended, in the first quarter of 2001 and expects to recognize an asset
for the fair value of unsettled aluminum hedges. The asset to be recognized is
not significant.
In September, 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and it is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral as of fiscal year end 2000. SFAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures which are included in Note 8.
F-10
2. Acquisitions and Divestitures
A. PAS Acquisition as of November 2000
On November 30, 2000, the former PAS merged into a wholly-owned subsidiary
of the Company. The former PAS was the third largest publicly-held U.S.-based
Pepsi anchor bottler, with distribution rights in portions of Arkansas, Iowa,
Louisiana, Minnesota, Mississippi, North Dakota, South Dakota, Tennessee and
Texas. The former PAS also operated in Puerto Rico, the Bahamas and Jamaica and
had certain rights and preferences for expansion of its business with PepsiCo,
including further expansion in the Caribbean.
In connection with this acquisition, the Company issued 17.4 million shares
of common stock and paid $30.6 million to former PAS shareholders electing to
receive cash for their shares of the former PAS. The value assigned to the
shares issued in the merger was based on the average closing price for the
period including the day immediately preceding and following the date the
maximum number of shares to be issued was known, which occurred on November 22,
2000. Based upon the average price for this period, the value assigned to each
share issued was $14.167. The Company also assumed $316.9 million in debt and
recorded an increase in intangible assets of $348.1 million. In addition, the
Company issued 1.7 million shares of common stock at $14.6125 per share under
the terms of the share subscription rights issued to former PAS shareholders
electing the earn-out provision. Including costs associated with the acquisition
and debt assumed in the acquisition, the total purchase price was $603.4
million. Details of the acquisition of the former PAS are as follows (in
millions):
Acquisition costs:
Common stock issued to former PAS shareholders $ 246.9
Cash paid to former PAS shareholders 30.6
Value of share subscription rights issued to former PAS shareholders 1.2
Transaction costs incurred by the former Whitman Corporation 7.8
--------
Initial acquisition costs, excluding contingent payment 286.5
--------
Allocation of acquisition costs:
Fair value of net liabilities of the former PAS (54.6)
Transaction costs incurred by the former PAS (7.0)
--------
Excess of acquisition costs over fair value of net liabilities $ 348.1
========
Shareholders of the former PAS could elect to receive a lesser amount of
shares at closing plus the right to receive in the future additional shares of
the Company. This right is based on the former PAS business units achieving
certain performance levels in the years 2000 through 2002. The total aggregate
value of shares to be received in the future could be up to 0.1095 shares of
Company common stock for each former PAS share held at the time of closing.
Based upon the elections made, a total of 6.9 million additional shares of the
Company could be issued in 2002 and 2003 if the performance levels are met.
Issuance of such shares would result in an increase in intangible assets related
to the acquisition.
In connection with this acquisition, cash paid, net of cash acquired,
totaled $21 million and the Company also funded $32.5 million for the purchase
of the preferred stock of Delta Beverage Group, a subsidiary of the former PAS.
In addition, the Company recorded $1.4 million of liabilities associated with
the termination of approximately 100 employees of the former PAS as a result of
the acquisition. A subsidiary of the former PAS is involved in a joint venture,
which has resulted in the Company recording a minority interest liability for
the joint venture partner's equity in the joint venture.
Pohlad Companies and PepsiCo hold interests in Dakota Holdings LLC which
currently owns approximately 14.2 million shares of the Company's common stock.
F-11
B. New Business Relationship with PepsiCo as of May 1999
The Company entered into a new business relationship with PepsiCo in May
1999. As a part of the Amended and Restated Contribution and Merger Agreement
(the "Agreement") with PepsiCo, on May 20, 1999 PepsiCo contributed certain
assets of several domestic franchise territories to the Company, including
Cleveland, Ohio; Dayton, Ohio; Indianapolis, Indiana; St. Louis, Missouri and
portions of southern Indiana. The Company acquired PepsiCo's international
operations in Hungary, the Czech Republic, Republic of Slovakia and Poland on
May 31, 1999. In exchange for the territories acquired from and contributed by
PepsiCo and the elimination of PepsiCo's 20 percent minority interest in the
Company's subsidiary, Pepsi-Cola General Bottlers, Inc. ("Pepsi General"), the
Company issued 54 million shares of its common stock to PepsiCo. As of fiscal
year end 2000, PepsiCo holds, directly and indirectly, 57.3 million shares, or
36.8 percent, of the Company's outstanding common stock. In addition, the
Company paid PepsiCo cash totaling $133.7 million, assumed bank debt of $42.3
million, and assumed $241.8 million of notes payable to PepsiCo, which were
repaid on August 31, 1999. As part of the Agreement, the Company agreed to
repurchase up to 16 million shares, or $400 million of its common stock,
whichever was less, during the 12-month period following the close of the
transaction. The Company satisfied this repurchase commitment in 1999.
The Agreement provided for the Company to sell to PepsiCo its operations in
Marion, Virginia; Princeton, West Virginia and the St. Petersburg area of
Russia. On March 19, 1999, the Company completed the sale to PepsiCo of the
franchises in Marion, Virginia and Princeton, West Virginia. The sale of the
franchise in Russia was completed on March 31, 1999. Net proceeds from these
sales were $112 million and the Company recorded a pretax gain of $13.3 million,
which is reflected in other income (expense), net, on the Consolidated
Statements of Income. The gain, after taxes and minority interest, was $7.8
million.
Details of the acquired franchises, as adjusted during 2000 for the final
valuation of property and certain other adjustments, are as follows (in
millions):
Acquisition costs:
Common stock issued to PepsiCo $1,134.0
Assumption of notes payable to PepsiCo 241.8
Elimination of PepsiCo's 20 percent minority interest in Pepsi General (243.2)
--------
Net acquisition costs 1,132.6
Less: Fair value of net tangible assets acquired 89.5
--------
Excess of acquisition costs over fair value of net tangible assets $1,043.1
========
Cash paid for this acquisition, net of cash acquired, totaled $115.6
million. In connection with the acquisition of the Central European franchises
from PepsiCo, the Company wrote down $23.7 million of certain assets in the new
territories, including equipment and other assets related to plastic returnable
bottles to reflect the exit of that package. In addition, the Company recorded
$1.1 million of liabilities for certain employees who were terminated as a
result of the acquisition. These items resulted in an increase in intangible
assets related to the acquisition.
The acquisitions of the former PAS and the domestic and Central European
territories have been accounted for under the purchase method; accordingly, the
results of operations of the acquired territories have been included in the
Company's consolidated financial statements since the dates of acquisition. The
excess of the aggregate purchase price over the fair value of net assets
acquired is being amortized on a straight-line basis over 40 years based on the
reasons previously discussed.
C. Other Acquisitions and Divestitures
On December 29, 2000, the Company acquired the Pepsi bottling operations in
Trinidad and Tobago. On December 1, 1999, the Company acquired Toma, a leading
soft drink company in the Czech Republic. These acquisitions were accounted for
under the purchase method; accordingly, the operating results of the acquired
companies are included in the Company's consolidated financial statements since
the dates of acquisition. The effect of these acquisitions, had they been made
as of the beginning of 1999, would not have been significant to the Company's
operating results, and consideration paid for these acquisitions was not
significant. In the first quarter of 2000, the Company sold its operations in
the Baltics. This sale resulted in a gain of $2.6 million ($1.4 million after
taxes), which is reflected in other income (expense), net on the Consolidated
Statements of Income. There were no other significant acquisitions or
divestitures during 2000, 1999 or 1998.
F-12
D. Pro Forma Financial Information (unaudited and in millions, except per
share data)
The pro forma condensed consolidated results of continuing operations
presented below for 2000 and 1999 assume the following:
o The territories and companies described above, with the exception of
Trinidad and Tobago, were acquired or divested as of the beginning of
fiscal 1999.
o The December 1999 acquisition by the former PAS of the soft drink business
of Desnoes and Geddes, a Jamaican bottler of Pepsi-Cola products and other
brands, is assumed to have occurred as of the beginning of fiscal 1999.
o The 16 million share repurchase commitment was completed as of the
beginning of fiscal 1999.
o The after-tax gains from the divestiture of franchise territories in 2000
and 1999 were excluded.
o The special charges recorded in 2000 and 1999 were excluded, as well as
other non-recurring items recorded by the Company and the former PAS.
o Interest expense has been adjusted to assume the interest rates in effect
in both years for the Company would have been in effect for debt assumed
from the former PAS business units.
o The effective tax rate, excluding special charges and non-recurring items,
was approximately 50 percent in each year.
2000 1999
-------- --------
Sales $3,104.9 $3,019.7
Income from continuing operations,
adjusted as described above 84.3 68.5
Per common share-basic 0.54 0.43
Per common share-diluted 0.53 0.43
The above pro forma results are for informational purposes only and may not
be indicative of actual results that would have occurred had the transactions
described taken place as of the beginning of fiscal 1999.
3. Discontinued Operations
Income from discontinued operations in 2000 includes the reversal of prior
accruals resulting from certain insurance settlements for environmental matters
(see Note 16) related to a former subsidiary of the Company, Pneumo Abex, net of
certain increased environmental and related accruals. Loss from discontinued
operations in 1999 includes after-tax amounts related to a second quarter $12
million settlement of environmental litigation filed against Pneumo Abex, as
well as second quarter and fourth quarter increases of $30.8 million and $39
million, respectively, in accruals for other environmental matters related to
Pneumo Abex.
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 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. Included in this amount is the
elimination of $64.2 million of accumulated other comprehensive loss
representing cumulative translation adjustments of Hussmann and Midas as of the
date of the spin-offs.
Combined financial information for discontinued operations in 2000, 1999
and 1998 is shown below (in millions):
2000 1999 1998
----------- ----------- -----------
Sales and revenues of Hussmann and Midas $ -- $ -- $ 109.6
=========== =========== ===========
Loss from discontinued operations:
Hussmann and Midas $ -- $ -- $ (0.5)
Previously discontinued operations 8.9 (51.7) --
----------- ----------- -----------
Income (loss) from discontinued operations $ 8.9 $ (51.7) $ (0.5)
=========== =========== ===========
Income tax expense (benefit) included in income (loss) from
discontinued operations $ 5.8 $ (30.1) $ 0.1
=========== =========== ===========
F-13
4. Extraordinary Loss on Early Extinguishment of Debt
In January, 1998, Whitman made a tender offer for any and all of its
outstanding 7.625 percent and 8.25 percent notes maturing June 15, 2015, and
February 15, 2007, respectively. In connection with the tender offer, Whitman
repurchased 7.625 percent and 8.25 percent notes with principal amounts of $91
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 million
scheduled to mature in 1998 and 1999, notes due in 2002 with principal amounts
of $50 million and industrial revenue bonds of $5 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.
5. Special Charges
In the fourth quarter of 2000, the Company recorded a special charge of
$21.7 million ($13.2 million after taxes). The charge, related to the
acquisition of the former PAS, included severance, related benefits and other
payments to executives and employees of the Company totaling $17.1 million.
Further, in connection with the closure of its production facility in Ft. Wayne,
Indiana, the Company recorded a charge of $4.6 million, which included a
write-down of building and equipment and $0.5 million for severance payments and
other benefits.
In the third quarter of 1999, the Company recorded a special charge of $4.5
million ($2.8 million after tax) for staff reduction costs in certain domestic
markets.
In the second quarter of 1999, the Company recorded a special charge of
$23.4 million, which included $18.6 million ($11.4 million after tax) for staff
reduction costs and non-cash asset write-downs, principally related to the
acquisition of the domestic and international territories from PepsiCo. In
addition, the Company announced it would seek the sale of the Baltic operations
to a third party and recorded a write-down of the Company's investment by $4.8
million, which is included in special charges.
In 1997, the Company recorded special charges totaling $49.3 million,
consisting of $14.8 million to consolidate a number of the Company's domestic
divisions, including reductions in staffing levels, and to write-down certain
assets in its domestic and international operations, and $34.5 million relating
to the severance of essentially all of the former Whitman corporate management
and staff and for expenses associated with the spin-offs. The final payments of
severance and related benefits for the 1997 charges were made in January, 2000.
F-14
The following table summarizes the activity associated with special charges
during the periods presented (in millions):
2000 1999 1997
Charges Charges Charges Total
--------- --------- ---------- ---------
Accrued liabilities as of fiscal year end 1997 $ 38.9 $ 38.9
------- -------
Expenditures:
Employee related costs (18.1) (18.1)
Spin-off related costs and other (6.3) (6.3)
------- -------
Total (24.4) (24.4)
------- -------
Accrued liabilities as of fiscal year end 1998 14.5 14.5
------- -------
Special charges:
Asset write-downs associated with exit
of plastic returnable bottle package in
existing international territories $ 7.6 7.6
Other asset write-downs 5.9 5.9
Employee related costs 9.6 9.6
Write-down of Baltic operations 4.8 4.8
------- -------
Total 27.9 27.9
------- -------
Expenditures and asset write-downs:
Asset write-downs (18.3) (18.3)
Expenditures for employee related costs (5.3) (6.2) (11.5)
------- ------- -------
Total (23.6) (6.2) (29.8)
------- ------- -------
Accrued liabilities as of fiscal year end 1999 4.3 8.3 12.6
------- ------- -------
Special charges:
Employee related costs $ 17.6 17.6
Asset write-downs associated with Ft. Wayne
production facility closure 4.1 4.1
------- -------
Total 21.7 21.7
------- -------
Expenditures and asset write-downs:
Asset write-downs (4.1) (4.1)
Expenditures for employee related costs (0.2) (4.3) (8.3) (12.8)
------- ------- ------- -------
Accrued liabilities as of fiscal year end 2000 $ 17.4 $ -- $ -- $ 17.4
======= ======= ======= =======
F-15
Employee related costs of $17.6 million recorded in 2000 include severance
payments to employees affected by management changes related to the acquisition
of the former PAS, including executives and other employees, as well as
employees of the Ft. Wayne production facility. These changes affected
approximately 50 employees in total. Employee related costs of $9.6 million
recorded in the 1999 special charges include severance payments for management
and staff affected by the consolidation of international headquarters and
operations in Poland and management changes in certain domestic markets. The
charges recorded in 1999 resulted in the elimination of approximately 310
positions, all of which have been eliminated as of fiscal year end 2000.
The accrued liabilities remaining as of fiscal year end 2000 are comprised
of deferred severance payments and certain employee benefits. The Company
expects to pay substantially all of the $17.4 million of employee related costs,
using cash from operations, during the next twelve months; accordingly, such
amounts are classified as other current liabilities.
6. Interest Expense, Net
Interest expense, net, consisted of the following (in millions):
2000 1999 1998
-------- -------- --------
Interest expense $ (85.8) $ (67.1) $ (46.4)
Interest income from Hussmann and Midas -- -- 1.6
Other interest income 1.8 3.2 8.7
-------- -------- --------
Interest expense, net $ (84.0) $ (63.9) $ (36.1)
======== ======== ========
Interest income from Hussmann and Midas related to intercompany loans and
advances. The related interest expense recorded by Hussmann and Midas is
included in 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 3.
7. Income Taxes
Income taxes (benefits) related to continuing operations consisted of the
following (in millions):
2000 1999 1998
-------- -------- --------
Current:
Federal $ 43.2 $ 34.9 $ 38.2
Non-U.S. 0.9 -- --
State and local 5.9 7.2 7.3
-------- -------- --------
Total current 50.0 42.1 45.5
-------- -------- --------
Deferred:
Federal 18.5 (19.4) 22.0
Non-U.S. (2.0) 1.5 (0.6)
State and local 3.1 (2.1) 2.8
-------- -------- --------
Total deferred 19.6 (20.0) 24.2
-------- -------- --------
Total income taxes $ 69.6 $ 22.1 $ 69.7
======== ======== ========
F-16
In the second quarter of 1999, as a result of the Central European
territory acquisitions, the Company assessed certain previous tax positions
related to its international operations and eliminated $19.8 million of deferred
tax liabilities recorded in prior periods. Beginning in the second quarter of
1999, the Company no longer defers the U.S. tax benefits on international
losses. The table below reconciles the income tax provision for continuing
operations at the U.S. federal statutory rate to the Company's actual income tax
provision on continuing operations (in millions):
2000 1999 1998
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Income taxes computed at the U.S. federal statutory rate
on income from continuing operations, excluding
non-recurring items $ 56.1 35.0 $ 48.3 35.0 $ 53.3 35.0
State income taxes, net of federal income tax benefit 6.3 3.9 6.0 4.3 6.6 4.3
Non-deductible portion of amortization-intangible assets 13.2 8.2 9.2 6.7 4.4 2.9
Non-U.S. losses (0.2) (0.1) 0.4 0.3 6.6 4.3
Other items, net 1.5 1.0 2.1 1.5 (1.2) (0.7)
--------- ------- --------- ------- --------- -------
Income tax on continuing operations, excluding
non-recurring items $ 76.9 48.0 $ 66.0 47.8 $ 69.7 45.8
Tax benefit of special charges and elimination of
deferred tax liabilities recorded in prior periods (7.3) (43.9) --
--------- --------- ---------
$ 69.6 $ 22.1 $ 69.7
========= ========= =========
The Company has settled the Federal income tax audits with the IRS through
the 1995 tax year. Adjustments to accruals resulting from these audits 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. As of fiscal year end 2000 and 1999, deferred income taxes are
attributable to (in millions):
2000 1999
-------- ---------
Deferred tax assets:
Non-U.S. net operating loss and tax credit carryforwards $ 99.1 $ --
U.S. net operating loss and tax credit carryforwards 42.1 --
Provision for special charges and previously sold businesses 18.5 37.8
Lease transactions 8.1 10.5
Unrealized losses on investments 7.6 7.3
Pension and postretirement benefits 12.6 11.4
Deferred compensation 6.5 5.3
Other 19.9 8.8
-------- --------
Gross deferred tax assets 214.4 81.1
Valuation allowance on non-U.S. net operating loss and tax
credit carryforwards (99.1) --
-------- --------
Net deferred tax assets 115.3 81.1
-------- --------
Deferred tax liabilities:
Property (93.5) (79.3)
Intangible assets (16.1) (12.0)
Deferred state taxes (7.5) (6.2)
Non-U.S. branch activity (1.2) (0.8)
Other (27.6) (28.0)
-------- --------
Total deferred tax liabilities (145.9) (126.3)
-------- --------
Net deferred tax liability $ (30.6) $ (45.2)
======== ========
Net deferred tax asset (liability) included in:
Other current assets $ 16.4 $ 25.9
Deferred income taxes (47.0) (71.1)
-------- --------
Net deferred tax liability $ (30.6) $ (45.2)
======== ========
F-17
There currently is no undistributed non-U.S. income because the Company's
international operations have accumulated pretax losses. Pretax losses from
international operations were $32.9 million, $45.3 million and $20.6 million in
2000, 1999 and 1998, respectively. In connection with the acquisition of the
former PAS, the Company became the successor to U.S. Federal net operating loss
("NOLs") and tax credit carryforwards, as well as non-U.S. NOLs. The Company
also has NOLs related to its Central European operations. As of fiscal year end
2000, the U.S. NOLs were $120.2 million and expire in 2003 through 2019, while
the non-U.S. NOLs amounted to $312.4 million. Utilization of U.S. and non-U.S.
NOLs is limited by both the U.S. Internal Revenue Code and by various
international tax laws. The Company has provided a full valuation allowance
against the non-U.S. NOLs. 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. Any future
adjustments to the NOLs succeeded to the Company in connection with the purchase
of the former PAS will be recorded as an adjustment to intangible assets.
8. Sales of Receivables
In the fourth quarter of 2000, Whitman Finance, a special purpose entity,
entered into an agreement (the "Securitization") with a major U.S. financial
institution to sell an undivided interest in its receivables. The agreement
involves the sale of receivables by certain of the Company's domestic
subsidiaries to Whitman Finance, which in turn sells an undivided interest in a
revolving pool of receivables to the financial institution. Costs related to
this arrangement, including losses on the sale of receivables, are included in
interest expense.
The facility was fully utilized as of fiscal year end 2000. As a result,
receivables for which an undivided ownership interest was sold under the program
totaled $217.4 million and the cash proceeds from the sale totaled $150 million.
This resulted in a $150 million reduction in the Company's balances of
receivables and short-term debt. The receivables were sold to the financial
institution at a discount, which resulted in a loss of $0.7 million. The
retained undivided interest of $63.1 million is included in receivables, at fair
value. The fair value incorporates expected credit losses, which are based on
specific identification of uncollectible accounts and application of historical
collection percentages by aging category. Since substantially all receivables
sold to Whitman Finance carry 30-day terms of payment, the retained interest is
not discounted. The weighted-average key credit loss assumption used in
measuring the retained interests at the date of the Securitization and as of
fiscal year end 2000, including the sensitivity of the current fair value of
retained interests to immediate 10 percent and 20 percent adverse changes in the
credit loss assumption are as follows (in millions):
As of fiscal year end 2000
-----------------------------------------------
10% adverse 20% adverse
Date of securitization Actual Change Change
---------------------- ------ ----------- -----------
Expected credit losses 3.3% 3.3% 3.6% 4.0%
Fair value of retained interests $66.7 $63.1 $62.4 $61.5
The above sensitivity analysis is hypothetical and should be used with
caution. Changes in fair value based on a 10 or 20 percent variation should not
be extrapolated because the relationship of the change in assumption to the
change in fair value may not always be linear. Whitman Finance's total
delinquencies (receivables over 60 days past due) as of fiscal year end 2000
were $9.8 million. Due to the timing of the Securitization, Whitman Finance's
credit losses were not significant in 2000.
F-18
9. Debt
Long-term debt as of fiscal year end 2000 and 1999 consisted of the
following (in millions):
2000 1999
------- -------
6.0% notes due 2004 $ 150.0 $ 150.0
6.375% notes due 2009 150.0 150.0
9.75% notes due 2003 125.9 --
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 125.0 125.0
holder)
6.5% notes due 2006 100.0 100.0
7.5% notes due 2001 75.0 75.0
6.90% notes due 2005 60.0 60.0
6.25% notes due 2000 -- 75.5
Various other debt 27.0 27.4
------- -------
Total debt 937.9 887.9
Less: Amount classified as short-term debt 75.1 75.5
Unamortized discount 2.7 3.4
------- -------
Total long-term debt $ 860.1 $ 809.0
======= =======
The Company maintains a $750 million commercial paper program and also has
$750 million available under a contractual revolving credit facility as a
back-up for the commercial paper program; accordingly, the Company has a total
of $750 million available under the commercial paper program and revolving
credit facility combined. In addition, the Company borrows funds under unsecured
money market loans. The interest rates on the revolving credit facility,
expiring in 2004, are based primarily on the London Interbank Offered Rate
("LIBOR"). There were no borrowings under the revolving credit facility as of
fiscal year end 2000 or 1999. The weighted-average borrowings under the
commercial paper program and money market loans during 2000 and 1999 were $372.1
million and $128 million, respectively. The Company is in compliance with all
covenants under its debt agreements.
During November 2000, the Company gave notice of its intent to redeem the
9.75 percent notes due 2003 with a face value of $120 million at a rate,
including premium, of 104.875. The notes were subsequently redeemed on January
2, 2001.
The amounts of long-term debt, excluding obligations under capital leases,
are scheduled to mature, or have been redeemed, as follows (in millions):
Fiscal
Year Amount
------ -------
2001 $ 201.0
2002 --
2003 125.0
2004 250.0
2005 61.0
The fair market value of the Company's floating rate debt as of fiscal year
end 2000 approximated its carrying value. The Company's fixed rate debt had a
carrying value of $935.9 million and an estimated fair market value of $930.5
million as of fiscal year end 2000. The fair market value of the fixed rate debt
was based upon quotes from financial institutions for instruments with similar
characteristics or upon discounting future cash flows.
F-19
10. Leases
As of fiscal year end 2000, annual minimum rental payments required under
capital leases and operating leases that have initial noncancelable terms in
excess of one year were as follows (in millions):
Capital Operating
Leases Leases
------- ---------
2001 $ 1.6 $ 18.2
2002 1.0 13.3
2003 0.8 10.5
2004 0.1 7.1
Thereafter -- 22.8
------ ------
Total minimum lease payments 3.5 $ 71.9
======
Less: imputed interest 0.6
------
Present value of minimum lease payments $ 2.9
======
Total rent expense applicable to operating leases amounted to $17.8
million, $19.1 million and $15.3 million in 2000, 1999 and 1998, respectively.
During 2000, the Company assumed the operating lease commitments of the former
PAS (see Note 2) and renewed several long-term operating lease commitments. A
majority of the Company's leases provide that the Company pays taxes,
maintenance, insurance and certain other operating expenses.
11. Financial Instruments
During 2000 and 1999, the Company used derivative financial instruments to
reduce the Company's exposure to adverse fluctuations in commodity prices. These
financial instruments were "over-the-counter" instruments and were designated at
their inception as hedges of underlying exposures. The Company does not use
derivative financial instruments for trading purposes.
During 2000 and 1999, the Company entered into swap contracts to hedge
future fluctuations in aluminum prices. Each contract hedges price fluctuations
on a portion of the Company's aluminum can requirements. Because of the high
correlation between aluminum commodity prices and the Company's contractual cost
of aluminum cans, the Company considers these hedges to be highly effective. As
of fiscal year end 2000, the Company has hedged a portion of its future domestic
aluminum requirements. Deferred hedging gains and losses on these contracts as
of fiscal year end 2000 were not significant and will be recognized in income
upon sale of the inventory containing the aluminum being hedged.
12. Pension and Other Postretirement Plans
Company-sponsored defined benefit pension plans. Most of the Company's U.S.
employees are covered under various defined benefit pension plans sponsored
and/or 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.
In connection with the 1999 transaction with PepsiCo, substantially all of
the active U.S. employees formerly employed by PepsiCo in the acquired
territories are now covered under the plans sponsored and funded by the Company.
Except as negotiated through new union contracts for hourly employees, each
employee's years of service under the PepsiCo plans will count toward their
benefit formula under the Company's plans; however, the Company did not assume
plan assets or obligations under the PepsiCo plans.
F-20
Net periodic pension cost for 2000, 1999 and 1998 included the following
components (in millions):
2000 1999 1998
------- ------ ------
Service cost $ 5.4 $ 5.1 $ 3.5
Interest cost 7.7 7.0 6.6
Expected return on plan assets (9.4) (8.6) (8.0)
Amortization of actuarial loss (0.9) -- (0.3)
Amortization of transition asset (0.2) (0.2) (0.2)
Settlement 0.1 -- --
Amortization of prior service cost 1.0 1.0 0.9
------ ------ ------
Net periodic pension cost $ 3.7 $ 4.3 $ 2.5
====== ====== ======
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 fiscal year end 2000 and 1999 (in millions):
2000 1999
------ ------
Benefit obligation at beginning of year $104.5 $106.3
Service cost 5.4 5.1
Interest cost 7.7 7.0
Amendments 0.3 1.8
Actuarial gain (2.9) (10.8)
Acquisition 7.1 1.0
Benefits paid (6.5) (5.9)
------ ------
Benefit obligation at end of year $115.6 $104.5
------ ------
Fair value of plan assets at beginning of year $115.2 $101.9
Actual return on plan assets 16.5 18.7
Employer contributions 2.4 0.5
Acquisition 9.6 --
Benefits paid (6.5) (5.9)
------ ------
Fair value of plan assets at end of year $137.2 $115.2
------ ------
Funded status $ 21.6 $ 10.7
Unrecognized net actuarial gain (30.6) (21.4)
Unrecognized prior service cost 4.2 4.9
Unrecognized transition asset (0.2) (0.4)
------ ------
Net amount recognized $ (5.0) $ (6.2)
====== ======
Net amounts recognized in the balance sheets consist of:
2000 1999
------ ------
Prepaid pension cost $ 2.5 $ --
Accrued pension liability (7.5) (6.2)
------ ------
Net amount recognized $ (5.0) $ (6.2)
====== ======
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: 2000 1999 1998
-------------------------- ---------- ---------- ----------
Discount rates 7.5% 6.5% 7.0%
Expected long-term rates of return on assets 9.5% 9.5% 9.5%
Rates of increase in future compensation levels 5.0% 4.0% 4.5%
Benefit obligation: 2000 1999
------------------- ---------- ----------
Discount rates 7.75% 7.5%
Rates of increase in future compensation levels 5.25% 5.0%
F-21
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 $4.6 million, $3.7 million and zero, respectively,
as of fiscal year end 2000 and $30.0 million, $28.5 million and $25 million,
respectively, as of fiscal year end 1999.
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 $7
million, $6.1 million and $5.1 million in 2000, 1999 and 1998, 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 $2.9
million, $3.9 million and $3.1 million in 2000, 1999 and 1998, 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., including certain employees in the territories
acquired from PepsiCo, with certain life and health care benefits. U.S. salaried
employees retiring after July 1, 1989, except covered employees in the
territories acquired from PepsiCo, generally are required to pay the full cost
of these benefits. Effective January 1, 2000, non-union hourly employees are
also eligible for coverage under these plans, but are also required to pay the
full cost of the 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 2000,
1999 and 1998 amounted to $0.8 million, $0.6 million and $0.1 million,
respectively. The Company's post-retirement life and health benefits are not
funded. The unfunded accrued post-retirement benefits amounted to $25 million as
of fiscal year end 2000 and $24.3 million as of fiscal year end 1999.
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, relate 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 $10 million, $4.9 million and
$5.1 million in 2000, 1999 and 1998, respectively. Effective at the beginning of
2000, certain union employee groups terminated participation in
PepsiCo-sponsored plans and began participation in multi-employer plans, which
added $4.4 million of expense relative to multi-employer plans in 2000.
13. Stock Options and Warrants
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 no outstanding stock appreciation rights as of fiscal
year end 2000.
In connection with the acquisition of the former PAS (see Note 2), all
outstanding stock options of the former PAS were converted to options of the
Company's stock. No cash or other consideration was issued to employees, and the
aggregate intrinsic value of each option immediately after the acquisition was
not greater than the aggregate intrinsic value of each former PAS option
immediately before the acquisition. 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 converted
options.
In connection with the transaction with PepsiCo, all shares granted prior
to 1999 were vested in full during 1999.
F-22
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:
Options Outstanding
--------------------------------------------------------------------------------
Range of Weighted-Average
Options Exercise Prices Exercise Price
------- --------------- --------------
Balance, fiscal year end 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 (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 as adjusted 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 (1,487,026) 7.04 - 15.88 10.31
Recaptured or terminated (234,727) 11.45 - 19.53 15.11
----------
Balance, fiscal year end 1998 6,881,921 7.04 - 22.66 13.21
Granted 3,744,600 13.91 - 22.63 20.76
Exercised or surrendered (231,416) 7.04 - 16.13 10.61
Recaptured or terminated (154,489) 14.46 - 22.63 21.58
----------
Balance, fiscal year end 1999 10,240,616 7.04 - 22.66 15.90
Granted 2,322,597 11.97 - 14.66 12.49
Exercised or surrendered (262,798) 7.04 - 12.19 8.39
Recaptured or terminated (500,622) 11.45 - 22.63 16.66
Converted from former PAS options 1,451,087 10.81 - 22.53 14.44
----------
Balance, fiscal year end 2000 13,250,880 7.37 - 22.66 15.14
==========
The number of options exercisable as of fiscal year end 2000 was 9,066,069,
with a weighted-average exercise price of $15.37, compared with options
exercisable of 7,010,916 as of fiscal year end 1999 and 4,768,922 as of fiscal
year end 1998 with weighted-average exercise prices of $13.79 and $11.97,
respectively. As of fiscal year end 2000, there were 7,294,035 shares available
for future grants, which includes shares remaining from the 8,000,000 shares
provided for by the adoption of the 2000 Stock Incentive Plan in May, 2000. The
following table summarizes information regarding stock options outstanding and
exercisable as of fiscal year end 2000:
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
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$7.37 - $12.84 5,018,862 6.4 $ 11.02 2,386,559 $ 9.61
$13.09 - $18.48 5,735,673 6.1 15.61 4,886,735 15.65
$19.53 - $22.66 2,496,345 8.0 22.36 1,792,775 22.25
---------- ----------
Total Options 13,250,880 6.6 15.14 9,066,069 15.37
========== ==========
SFAS 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 assumptions presented in the
following table, the weighted-average estimated fair values at the dates of
grant of options in 2000, 1999 and 1998 (subsequent to the spin-offs of Hussmann
and Midas) were $4.60, $6.43 and $5.01, respectively. The weighted-average
estimated fair values of options granted in 1998 (prior to the spin-offs) was
$5.64.
F-23
The following table contains the Black-Scholes assumptions used:
Options Granted Options Granted
After Spin-Offs Before Spin-Offs
2000 1999 1998 1998
---- ---- ---- ----
Risk-free interest rate 6.6% 5.0% 4.7% 5.3%
Expected dividend yield 0.4% 0.9% 1.0% 1.9%
Expected volatility 28.9% 27.8% 27.2% 19.8%
Estimated lives of options (in years) 5.0 5.0 5.0 5.0
Based upon the above assumptions, the Company's net income (loss) and
income (loss) per share, adjusted to reflect the disclosures required under SFAS
No. 123, would have been (in millions, except per share amounts):
2000 1999 1998
------- ------- -------
Pro forma income (loss):
Income from continuing operations $ 64.4 $ 37.3 $ 59.8
Income (loss) from discontinued operations 8.9 (51.7) 2.4
Extraordinary loss on early extinguishment of debt -- -- (18.3)
------- ------- -------
Net income (loss) $ 73.3 $ (14.4) $ 43.9
======= ======= =======
Pro forma income (loss) per share - basic:
Continuing operations $ 0.46 $ 0.30 $ 0.59
Discontinued operations 0.07 (0.42) 0.02
Extraordinary loss on early extinguishment of debt -- -- (0.18)
------- ------- -------
Net income (loss) $ 0.53 $ (0.12) $ 0.43
======= ======= =======
Pro forma income (loss) per share - diluted:
Continuing operations $ 0.46 $ 0.30 $ 0.58
Discontinued operations 0.07 (0.42) 0.02
Extraordinary loss on early extinguishment of debt -- -- (0.18)
------- ------- -------
Net income (loss) $ 0.53 $ (0.12) $ 0.42
======= ======= =======
Options granted vest equally each year over a three year period. As a
result, the estimated costs indicated above for 1998 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 restricted shares of stock prior to 1998. No restricted
shares were granted in 2000, 1999 or 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 selling, delivery and
administrative expenses of $0.7 million in 1998, which included $0.3 million
associated with the dividend of Hussmann and Midas shares. Compensation expense
recorded in discontinued operations related to these grants was $0.7 million in
1998, which included $1.3 million 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. At fiscal year end 1998, 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. Accordingly,
the Company recorded no compensation expense related to restricted shares in
2000 or 1999.
In connection with the acquisition of the former PAS (see Note 2), the
Company converted former PAS warrants to warrants to acquire shares of the
Company's stock. The warrants are exercisable by Dakota Holdings LLC and by V.
Suarez & Co., Inc. for the purchase of 377,128 and 94,282 shares, respectively,
of the Company's common stock at $24.79 per share, exercisable anytime until
February 17, 2006. Dakota Holdings LLC currently owns approximately 14.2 million
shares of the Company's common stock.
F-24
14. Shareholder Rights Plan and Preferred Stock
On May 20, 1999, 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, par value $0.01 per share, of the Company.
The dividend was paid on June 11, 1999 to the shareholders of record on that
date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share, of the Company at a price of $61.25 per one one-hundredth
of a share of such Preferred Stock, subject to adjustment. The Rights will
become exercisable if someone buys 15 percent or more of the Company's common
stock or following the commencement of, or announcement of an intention to
commence, a tender or exchange offer to acquire 15 percent or more of the
Company's common stock. In addition, if someone buys 15 percent or more of the
Company's common stock, each right will entitle its holder (other than that
buyer) to purchase, at the Right's $61.25 purchase price, a number of shares of
the Company's common stock having a market value of twice the Right's $61.25
exercise price. If the Company is acquired in a merger, each Right will entitle
its holder to purchase, at the Right's $61.25 purchase price, a number of the
acquiring company's common shares having a market value at the time of twice the
Right's exercise price. The plan was subsequently amended on August 18, 2000 in
connection with the merger agreement with the former PAS. The amendment to the
rights agreement provides that:
o None of Pohlad Companies, any affiliate of Pohlad Companies, Robert C.
Pohlad, affiliates of Robert C. Pohlad or the former PepsiAmericas will be
deemed an "Acquiring Person" (as defined in the rights agreement) solely by
virtue of (1) the consummation of the transactions contemplated by the
merger agreement, (2) the acquisition by Dakota Holdings of shares of the
Company's common stock in connection with the merger, or (3) the
acquisition of shares of the Company's common stock permitted by the Pohlad
shareholder agreement;
o Dakota Holdings will not be deemed an "Acquiring Person" (as defined in the
rights agreement) so long as it is owned solely by Robert C. Pohlad,
affiliates of Robert C. Pohlad, PepsiCo and/or affiliates of PepsiCo; and
o A "Distribution Date" (as defined in the rights agreement) will not occur
solely by reason of the execution, delivery and performance of the merger
agreement or the consummation of any of the transactions contemplated by
the merger agreement.
Prior to the acquisition of 15 percent or more of the Company's stock, the
Rights can be redeemed by the Board of Directors for one cent per Right. The
Company's Board of Directors also is authorized to reduce the threshold to 10
percent. The Rights will expire on May 20, 2009. The Rights do not have voting
or dividend rights, and until they become exercisable, they have no dilutive
effect on the per-share earnings of the Company.
The Company has 12.5 million authorized shares of Preferred Stock. There is
no Preferred Stock issued or outstanding.
15. Supplemental Cash Flow Information
Net cash provided by continuing operations reflects cash payments and cash
receipts as follows (in millions):
2000 1999 1998
------- ------- -------
Interest paid $ 84.7 $ 64.4 $ 51.4
Interest received 1.8 3.8 8.3
Income taxes paid 47.1 37.5 23.3
Income tax refunds 2.1 1.0 1.3
The Company also received $1.6 million of interest from Hussmann and Midas
in 1998 related to their intercompany account balances.
16. Environmental and Other Contingencies
The Company is subject to certain indemnification obligations under
agreements with previously sold subsidiaries, including potential environmental
liabilities. There is significant uncertainty in assessing the Company's share
of the potential liability for such indemnification. The assessment and
determination for cleanup at the various sites involved is inherently
speculative during the early stages, and the Company's indemnification
obligation for such costs is subject to various factors, including possible
secondary insurance recoveries and the allocation of liabilities among many
other potentially responsible and financially viable parties.
F-25
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. Through 2000, the
Company had indemnified an estimated $37.8 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 has accrued and
expects to incur an estimated $3.8 million to complete the remediation over the
next one to two years.
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 in most
cases been estimated and other large, financially viable parties are responsible
for all or substantial portions of the remainder.
As of fiscal year end 2000, the Company had $21.1 million accrued to cover
potential indemnification obligations, including $5.0 million classified as
current 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 liability for indemnification obligations is
approximately $19 million higher than the current accrued balance. The Company
has determined that there is no amount within the range of possible liabilities
that appears to be a better estimate than any other amount within the range and
the minimum amount within the range has been accrued. The Company expects a
significant portion of the accrual will be disbursed during the next four years.
During the second quarter of 2000, a trust was established that will be
used to satisfy a portion of the future indemnification obligations. As a result
of the establishment of the trust, the Company removed a portion of its existing
liabilities to which the trust is expected to be responsive. No payments were
made by the Trust during 2000, and the Trust held $33.6 million as of fiscal
year end 2000. The Company and its previously sold subsidiaries have also in the
past successfully negotiated other settlements with insurance companies and
other responsible parties related to these environmental liabilities, including
recoveries of $2.8 million in 2000. Receivables of $12.1 million for future
amounts anticipated from insurance companies and other responsible parties were
included as assets on the Company's balance sheet as of fiscal year end 2000.
The estimated indemnification 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 occur in the
future.
The Company has 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 cannot be determined. In the
opinion of management, based upon information currently available, the ultimate
resolution of these claims and litigation, including potential environmental
exposures, and considering amounts already accrued, should not have a material
effect on the Company's financial condition, although amounts recorded in a
given period could be material to the results of operations or cash flows for
that period.
Existing environmental liabilities associated with the Company's continuing
operations are not material.
F-26
17. Segment Reporting
The Company operates in one industry, carbonated soft drinks and other
ready-to-drink beverages, split into two geographic areas - Domestic and
International. The Company does business in 18 states in the U.S., and outside
the U.S. the Company does business in Poland, Hungary, the Czech Republic,
Republic of Slovakia, Puerto Rico, Jamaica, the Bahamas and Trinidad and Tobago.
Selected financial information related to the Company's geographic segments
is shown below (in millions):
Sales Operating Income
-------------------------------- --------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Domestic $2,242.8 $1,951.4 $1,534.0 $ 246.7 $ 228.3 $ 221.0
International 284.8 186.8 83.5 (23.7) (46.8) (17.2)
-------- -------- -------- -------- -------- --------
Total $2,527.6 $2,138.2 $1,617.5 223.0 181.5 203.8
======== ======== ========
Interest expense, net (84.0) (63.9) (36.1)
Other income (expense), net 2.1 (46.0) (15.5)
-------- -------- --------
Pretax income $ 141.1 $ 71.6 $ 152.2
======== ======== ========
Capital Depreciation
Investments and Amortization
-------------------------------- ---------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Domestic $ 137.7 $ 145.9 $ 132.8 $ 132.5 $ 99.3 $ 68.3
International 27.7 19.5 26.3 31.5 24.9 7.0
-------- -------- -------- -------- -------- --------
Total operating 165.4 165.4 159.1 164.0 124.2 75.3
Non-operating -- -- -- 2.4 2.4 2.4
-------- -------- -------- -------- -------- --------
Total $ 165.4 $ 165.4 $ 159.1 $ 166.4 $ 126.6 $ 77.7
======== ======== ======== ======== ======== ========
Assets Long-Lived Assets
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Domestic $2,757.0 $2,419.7 $2,437.3 $2,016.5
International 396.0 268.9 282.3 201.7
-------- -------- -------- --------
Total operating 3,153.0 2,688.6 2,719.6 2,218.2
Non-operating 182.6 175.7 74.2 77.7
-------- -------- -------- --------
Total $3,335.6 $2,864.3 $2,793.8 $2,295.9
======== ======== ======== ========
Operating income is exclusive of net interest expense, other miscellaneous
income and expense items, and income taxes. In 2000, the Company recorded
special charges of $21.7 million (see Note 5), which reduced the reported
domestic operating income in 2000. In 1999, the Company recorded special charges
of $27.9 million (see Note 5), which reduced reported operating income for
domestic and international operations by $7.3 million and $20.6 million,
respectively. Foreign currency losses were $1.7 million in 1998, including $1.4
million associated with the Russia operations, which were sold in March, 1999.
Such losses are included in other income (expense), net. Foreign currency gains
or losses in 2000 and 1999 were not significant. There were no export sales, and
sales between geographic areas were insignificant. Sales to any single customer
and sales to domestic or non-U.S. governments were individually less than ten
percent of consolidated sales.
Non-operating assets are principally cash and equivalents, investments,
property and miscellaneous other assets, including $30.3 million and $30.4
million of real estate investments as of fiscal year end 2000 and 1999,
respectively. Long-lived assets represent net property, investments and net
intangible assets.
18. Transactions with PepsiCo
The Company is a licensed producer and distributor of Pepsi carbonated soft
drinks and other non-alcoholic beverages. The Company purchases concentrate from
PepsiCo to be used in the production of these carbonated soft drinks and other
non-alcoholic beverages.
F-27
PepsiCo and the Company share a business objective of increasing
availability and consumption of Pepsi's brands. Accordingly, PepsiCo provides
the Company with various forms of marketing support to promote Pepsi's brands.
This support covers a variety of initiatives, including market place support,
marketing programs, marketing equipment and related program support and shared
media expense. PepsiCo and the Company each record their share of the cost of
marketing programs in their financial statements. Based on the objectives of the
programs and initiatives, domestic marketing support is recorded as an
adjustment to net sales or as a reduction of selling, delivery and
administrative expenses. There are no conditions or requirements which could
result in the repayment of any support payments received by the Company.
The Company 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 the Company
produces and/or distributes through various arrangements with PepsiCo or
partners of PepsiCo. The Company purchases concentrate from the Lipton Tea
Partnership and finished goods from the North American Coffee Partnership. The
Company 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:
2000 1999 1998
-------- -------- --------
Net sales $ 49.2 $ 39.8 $ 33.7
Cost of goods sold (505.0) (384.8) (288.3)
Selling, delivery and administrative expenses 29.2 43.9 41.3
F-28
19. Selected Quarterly Financial Data
(unaudited and in millions, except for earnings per share)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- ----------
2000:
Sales $ 548.9 $ 682.6 $ 655.2 $ 640.9 $ 2,527.6
---------- ---------- ---------- ---------- ----------
Gross profit $ 229.2 $ 279.1 $ 269.0 $ 256.1 $ 1,033.4
---------- ---------- ---------- ---------- ----------
Income from continuing operations $ 10.2 $ 30.6 $ 28.9 $ 1.8 $ 71.5
Income from discontinued operations -- 8.9 -- -- 8.9
--------- ---------- --------- ---------- ----------
Net income $ 10.2 $ 39.5 $ 28.9 $ 1.8 $ 80.4
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 138.1 136.4 136.3 145.4 139.0
Incremental effect of stock options 0.4 0.3 0.6 0.6 0.5
---------- ---------- ---------- ---------- ----------
Diluted 138.5 136.7 136.9 146.0 139.5
========== ========== ========== ========== ==========
Income per share - basic:
Continuing operations $ 0.07 $ 0.22 $ 0.21 $ 0.01 $ 0.51
Discontinued operations -- 0.07 -- -- 0.07
---------- ---------- ---------- ---------- ----------
Net income $ 0.07 $ 0.29 $ 0.21 $ 0.01 $ 0.58
========== ========== ========== ========== ==========
Income per share - diluted:
Continuing operations $ 0.07 $ 0.22 $ 0.21 $ 0.01 $ 0.51
Discontinued operations -- 0.07 -- -- 0.07
---------- ---------- ---------- ---------- ----------
Net income $ 0.07 $ 0.29 $ 0.21 $ 0.01 $ 0.58
========== ========== ========== ========== ==========
1999:
Sales $ 370.3 $ 505.2 $ 680.5 $ 582.2 $ 2,138.2
---------- ---------- ---------- ---------- ----------
Gross profit $ 150.6 $ 207.1 $ 288.5 $ 243.3 $ 889.5
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations $ 14.3 $ (10.3) $ 24.4 $ 14.5 $ 42.9
Loss from discontinued operations -- (27.2) -- (24.5) (51.7)
---------- ---------- ---------- ----------- ----------
Net income (loss) $ 14.3 $ (37.5) $ 24.4 $ (10.0) $ (8.8)
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 96.1 114.9 141.7 140.5 123.3
Incremental effect of stock options 1.5 -- 0.9 0.5 0.9
---------- ---------- ---------- ---------- ----------
Diluted 97.6 114.9 142.6 141.0 124.2
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.15 $ (0.09) $ 0.17 $ 0.10 $ 0.35
Discontinued operations -- (0.24) -- (0.17) (0.42)
---------- ---------- --------- --------- ---------
Net income (loss) $ 0.15 $ (0.33) $ 0.17 $ (0.07) $ (0.07)
========== ========= ========= ========= =========
Income (loss) per share - diluted:
Continuing operations $ 0.15 $ (0.09) $ 0.17 $ 0.10 $ 0.35
Discontinued operations -- (0.24) -- (0.17) (0.42)
---------- ---------- --------- --------- ---------
Net income (loss) $ 0.15 $ (0.33) $ 0.17 $ (0.07) $ (0.07)
========== ========= ========= ========= =========
The sum of earnings per share for the 1999 quarters does not equal the 1999
fiscal year amount due to changes in the average shares outstanding during the
period.
Due to the loss from continuing operations in the second quarter of 1999,
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 115.8 million average diluted shares.
F-29
PEPSIAMERICAS, INC. AND SUBSIDIARIES
----------------------
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 30, 2000
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
(2)+ Agreement and Plan of merger, dated as of August 18, 2000, among
Whitman Corporation, Anchor Merger Sub Inc. and PepsiAmericas, Inc.
(3)a# Amended and Restated Certificate of Incorporation.
(3)b Amended and Restated By-Laws of the Company.
(4)a# First Supplemental Indenture dated as of May 20, 1999, between Whitman
Corporation and The First National Bank of Chicago, Trustee, to the
Indenture dated as of January 15, 1993.
(4)b~ Form of Amendment to the Rights Agreements, dated as of May 20, 1999,
between the Company and First Chicago Trust Company of New York, as
Rights Agent.
(10)a# **Revised Stock Incentive Plan, as Adopted May 20, 1999.
(10)b# **Form of Nonqualified Stock Option Agreement as Amended May 20, 1999.
(10)c# **Form of Change in Control Agreement dated May 21, 1999.
(10)d# **Deferred Compensation Plan for Directors, as Adopted May 20, 1999.
(10)e# **1982 Stock Option, Restricted Stock Award and Performance Award Plan
(as amended through June 16, 1989).
(10)f# **Amendment No. 2 to 1982 Stock Option, Restricted Stock Award and
Performance Award Plan made as of September 1, 1992.
(10)g# **Form of Nonqualified Stock Option Agreement.
(10)h# **Amendment to 1982 Stock Option, Restricted Stock Award and
Performance Award Plan made as of February 19, 1993.
(10)i# **Management Incentive Compensation Plan.
(10)j# **Long Term Performance Compensation Program.
(10)k# **Whitman Corporation Executive Retirement Plan, as Amended and
Restated Effective January 1, 1998.
(10)l# **Pepsi-Cola General Bottlers, Inc. Executive Retirement Plan, as
Amended and Restated Effective January 1, 1998.
(10)m* **Employment Extension Agreement dated as of January 1, 2000 between
the Registrant and Bruce S. Chelberg.
(10)n* **Employment Extension Agreement dated as of January 1, 2000 between
the Registrant and Lawrence J. Pilon.
(10)o **Letter Agreement dated November 30, 2000 between the Registrant and
Dr. Archie R. Dykes.
(10)p## **Whitman Corporation Master Retirement Savings Plan.
(10)q^ **Whitman Corporation 2000 Stock Incentive Plan.
(10)r^^ **Form of Non-Qualified Stock Option Agreement.
(10)s^^^ **Amendment to Rights Agreement, dated as of August 18, 2000.
(10)t@ **PepsiAmericas, Inc. 1999 Stock Option Plan.
(10)u@ **Pepsi-Cola Puerto Rico Bottling Company Qualified Stock Option Plan.
(10)v@ **Pepsi-Cola Puerto Rico Bottling Company Non-Qualified Stock Option
Plan.
(10)w@ **Pepsi-Cola Puerto Rico Bottling Company Stock Option Agreement.
(10)x Letter Agreements dated November 30, 2000 between the Registrant and
Peter M. Perez.
(10)x++ Amended and Restated Shareholder Agreement, dated as of November 30,
2000, between the Company and PepsiCo, Inc.
(10)y Letter Agreements dated November 30, 2000 between the Registrant and
Larry D. Young.
(10)y++ Shareholder Agreement, dated November 30, 2000, among the Company,
Pohlad Companies, Dakota Holdings, LLC and Robert Pohlad.
(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.
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 Quarterly Report on Form
10-Q for the quarter ended July 3, 1999 under the indicated Exhibit
number.
* Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended January 1, 2000 under the indicated Exhibit
number.
## Incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 filed with the Commission on May 21,
1999.
^ Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 filed with the Commission on May 12,
2000.
^^ Incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 filed with the Commission on May 12,
2000.
^^^ Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4 filed with the Commission on
September 22, 2000.
@ Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed with the Commission on December 21, 2000.
+ Incorporated by reference to the Registrant's Registration Statement on
Form S-4 filed with the Commission on September 22, 2000.
~ Incorporated by reference to the Registrant's Current Report on Form
8-K filed with the Commission on August 18, 2000.
++ Incorporated by reference to the Registrant's Current Report on Form
8-K filed with the Commission on December 1, 2000.