UNITED STATES
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 [FEE REQUIRED]
For the fiscal year ended
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from March 1, 1993 to December 31, 1993
Commission file number 1-4351
SOUTHEASTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-5534018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 South Flagler Drive, Suite 1000E,
West Palm Beach, Florida 33401
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (407) 653-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Pacific Stock Exchange
Common Stock, $1.00 Par Value
11 7/8% Senior Subordinated Debentures Pacific Stock Exchange
due February 1, 1998
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
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. [X]
As of April 15, 1994, all of the voting common stock ($1.00 par value) of
the registrant is held by the registrant's parent, Triarc Companies, Inc.,
formerly known as DWG Corporation.
Part III of this Form 10-K incorporates by reference the registrant's
Definitive Proxy Statement filed with the Commission pursuant to Regulation
14A on March 11, 1994.
PAGE
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PART I
Item 1. Business.
Introduction
Southeastern Public Service Company ("SEPSCO"), directly and through its
subsidiaries, is currently engaged in three primary businesses:
refrigeration, liquefied petroleum gas and natural gas and oil. In
addition, SEPSCO also currently holds minority interests in several
subsidiaries of Triarc Companies, Inc. ("Triarc"), a public corporation
formerly known as DWG Corporation which, as a result of a recent merger,
owns 100% of SEPSCO's voting securities. See "Item 1. Business --
Introduction -- Other Investments" and "Item 1. Business -- Introduction --
Recent Merger" below.
As a result of a merger with a wholly-owned subsidiary of Triarc (the
"Merger") which was consummated on April 14, 1994, (i) all of SEPSCO's
voting securities are owned by Triarc and (ii) in the near future, SEPSCO's
common stock will be delisted from the Pacific Stock Exchange, the principal
market for such stock ("PSE"), and the registration of such stock under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), will be
terminated. Triarc's Class A Common Stock (the only class of Triarc's
voting securities) is traded on the New York Stock Exchange and the PSE. On
April 23, 1993, approximately 28.6% of Triarc's then outstanding Class A
Common Stock was acquired by DWG Acquisition Group, L.P. ("DWG
Acquisition"), a Delaware limited partnership the sole general partners of
which are Nelson Peltz and Peter W. May. See "Item 1. Business --
Introduction -- New Ownership and Executive Management" below.
SEPSCO was incorporated in Delaware in 1947. SEPSCO's principal
executive offices are located at 777 South Flagler Drive, Suite 1000E, West
Palm Beach, Florida 33401, and its telephone number is (407) 653-4000.
Reference herein to the Company includes collectively SEPSCO and its
subsidiaries unless the context indicates otherwise.
Other Investments
In addition to its three primary businesses, SEPSCO also holds minority
interests in several Triarc subsidiaries, including a 49% interest in
Graniteville Company ("Graniteville"), which manufacturers, dyes and
finishes cotton, synthetic and blended apparel fabrics, and a 5.4% interest
in CFC Holdings Corp. ("CFC Holdings"), the indirect parent of Royal Crown
Company, Inc. (the name of which was formerly Royal Crown Cola Co. and which
produces and sells soft drink concentrates used in the production and
distribution of soft drinks under such brand names as RC COLA and DIET RITE
COLA) and Arby's, Inc. (the world's largest franchise restaurant system
specializing in roast beef sandwiches). In July 1993, the Board of
Directors of SEPSCO adopted a resolution (the "July Resolution") calling for
the sale or discontinuance of substantially all of its operating businesses
and assets, other than its minority equity interests in other Triarc
subsidiaries. The actions contemplated by the July Resolution are referred
to herein as the "Discontinued Operations Plan." See "Item 1. -- Business -
- - Discontinued Operations."
Discontinued Operations
In October 1993, pursuant to the Discontinued Operations Plan, SEPSCO
completed three transactions in which it disposed of businesses which
provided a variety of services to electrical and telephone utilities and
municipalities, which businesses formerly constituted SEPSCO's utilities and
municipal services business segment. In April 1994, SEPSCO sold to
Southwestern Ice, Inc. ("Southwestern") substantially all of the operating
assets of the ice manufacturing and distribution portion of SEPSCO's
refrigeration services and products business segment (the "Ice Business")
for $5.0 million in cash and approximately $4.3 million principal amount of
subordinated secured notes due on the fifth anniversary of the sale (the
"Ice Sale") and the assumption by Southwestern of certain current
liabilities and of certain environmental liabilities. For additional
information regarding actions taken pursuant to the July Resolution, see
"Item 1. Business -- Recent Transactions."
In addition, in connection with the Discontinued Operations Plan, it is
expected that in the near future SEPSCO will (a) sell to Triarc the stock of
SEPSCO's subsidiaries that hold SEPSCO's natural gas and oil working and
royalty interests for a net cash purchase price of $8.5 million and (b)
transfer the liquefied petroleum gas business currently conducted by Public
Gas Company, a 99.7% owned subsidiary of SEPSCO ("Public Gas"), to National
Propane Corporation, a wholly-owned subsidiary of Triarc ("National
Propane"). Once the sale and the transfer described in the immediately
preceding sentence are completed, the only SEPSCO business remaining to be
sold to an independent third party pursuant to the Discontinued Operations
Plan will be the nationwide cold storage and warehouse facilities portion of
SEPSCO's refrigeration products and services business segment (the "Cold
Storage Business"). No agreements have been entered into as of the date
hereof with respect to the Cold Storage Business, and the precise timetable
for the disposition of such business will depend upon SEPSCO's ability to
identify an appropriate purchaser and to negotiate acceptable terms of sale.
Although SEPSCO currently anticipates completing the sale of that business
by July 31, 1994, there can be no assurance that SEPSCO will be successful
in this regard. Some or all of the net proceeds from the sale by SEPSCO of
any such business or assets may be used to repurchase, redeem or prepay
SEPSCO's outstanding indebtedness, including the indebtedness evidenced by
SEPSCO's 11-7/8% Senior Subordinated Debentures due February 1, 1998 (the
"Debentures").
Recent Merger
On April 14, 1994, a wholly-owned subsidiary of Triarc was merged into
SEPSCO and, as a result, SEPSCO became a wholly-owned subsidiary of Triarc.
In the Merger, holders of outstanding shares of SEPSCO common stock, other
than Triarc and its subsidiaries, received 0.8 of a share of Triarc's Class
A Common Stock for each of their shares of SEPSCO common stock. The Merger
was structured to satisfy Triarc's obligations under the terms of a
Stipulation of Settlement (the "Settlement Agreement") relating to the
settlement of a purported derivative action (the "Action") brought by
William A. Ehrman, a SEPSCO stockholder, on behalf of SEPSCO against Triarc,
certain of its affiliates and certain individuals. For more information
regarding the Action and the Settlement Agreement, see SEPSCO's Definitive
Proxy filed with the Securities and Exchange Commission pursuant to
Regulation 14A on March 11, 1994 (the "SEPSCO Proxy").
New Ownership and Executive Management
On April 23, 1993, DWG Acquisition acquired shares of Triarc Class A
Common Stock from Victor Posner ("Posner") and certain entities controlled
by him (together with Posner, the "Posner Entities"), representing
approximately 28.6% of Triarc's then outstanding common stock. As a result
of such acquisition and a series of related transactions which were also
consummated on April 23, 1993 (collectively, the "Equity Transactions"), the
Posner Entities no longer hold any shares of voting stock of Triarc or any
of its subsidiaries. Concurrently with the consummation of the Equity
Transactions, Triarc refinanced a significant portion of its high cost debt
in order to reduce interest costs and to provide additional funds for
working capital and liquidity purposes (the "Refinancing"). Following the
consummation of the Equity Transactions and the Refinancing, the Board of
Directors of each of Triarc and SEPSCO installed a new corporate management
team, headed by Nelson Peltz and Peter W. May, who were elected Chairman and
Chief Executive Officer and President and Chief Operating Officer of each of
Triarc and SEPSCO, respectively. In addition, Leon Kalvaria was elected
Vice Chairman of each of Triarc and SEPSCO. The Triarc Board of Directors
also approved a plan to decentralize and restructure Triarc's management
(the "Restructuring"). The Equity Transactions, the Refinancing and the
Restructuring are collectively referred to herein as the "Reorganization".
Change in Fiscal Year
On October 27, 1993, Triarc announced that it was changing its fiscal
year end from April 30 of each year to December 31 of each year effective
with the transition period ended December 31, 1993, and that each of its
subsidiaries that did not currently have a December 31 fiscal year end
(including SEPSCO) would also change its fiscal year end to December 31
effective for the transition period ended December 31, 1993. Accordingly,
this Form 10-K report relates to the ten month transition period from March
1, 1993 through December 31, 1993 ("Transition 1993"). References in this
Form 10-K to a year preceded by the word "Fiscal" refer to the twelve months
ended February 28 or 29 of such year.
Business Overview
As a result of the actions taken by the Board of Directors of SEPSCO in
October 1993 pursuant to the Discontinued Operations Plan (see "Item 1.
Business -- Introduction -- Discontinued Operations"), all of the businesses
historically engaged in by SEPSCO other than the liquefied petroleum gas
business have been reclassified as discontinued operations, and SEPSCO's
consolidated financial statements have been restated to reflect such
reclassification. See Note [3] to the Consolidated Financial Statements
(the "Consolidated Financial Statements") of Southeastern Public Service
Company and Subsidiaries included in "Item 8. Financial Statements and
Supplementary Data" below.
Set forth below is a brief description of the businesses which SEPSCO
continues to operate pending the transfer, sale or discontinuance thereof,
as well as a brief description of SEPSCO's other investments.
Refrigeration Services
SEPSCO's refrigeration business provides cold storage warehousing
facilities. The principal customers of the warehousing activities are food
distributors and supermarket chains. SEPSCO's refrigeration services are
provided to domestic customers on a national basis. SEPSCO also enters into
processing and storage agreements with certain customers.
The availability of raw materials is not material to the operation of
this business segment. SEPSCO's refrigeration business is seasonal.
Operating revenues are lower during cold weather when demand declines for
cold storage.
The services provided by this business segment are marketed nationally in
competition with three large national companies as well as many local
concerns. No competitor is dominant in the industry, although several
larger firms have greater resources than SEPSCO. The principal competitive
factors in the refrigeration business are price and service.
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's refrigeration operations and has filed appropriate notifications
with state environmental authorities and has begun a study of remediation at
such sites. SEPSCO removed certain underground storage and other tanks at
certain facilities of its refrigeration operations and has engaged in
certain remediation in connection therewith. Such removal and environmental
remediation involved a variety of remediation actions at various facilities
of SEPSCO located in a number of jurisdictions. Such remediation varied
from site to site, ranging from testing of soil and groundwater for
contamination, development of remediation plans and removal in certain
instances of certain contaminated soils. Remediation has recently been
completed or is on-going at two sites in Miami, Florida, one site in
Marathon, Florida, one site in Willard, Ohio, and one site in Provo, Utah.
In addition, remediation will be required at thirteen sites at various
locations which were sold or leased to Southwestern as part of the Ice Sale,
and such remediation will be made in conjunction with Southwestern. See
"Item 1. Business -- Recent Transactions." Based on preliminary information
and consultations with, and certain reports of, environmental consultants
and others, SEPSCO presently estimates SEPSCO's cost of all such remediation
and/or removal will approximate $3.7 million, in respect of which charges of
$1.3 million, $0.2 million and $2.2 million were made against earnings in
SEPSCO's Fiscal 1991, 1992 and 1993, respectively. In connection therewith,
through December 31, 1993, SEPSCO had incurred actual costs of $1.2 million
and had a remaining accrual of approximately $2.5 million. In addition to
the environmental costs borne by SEPSCO, in connection with the Ice Sale,
Southwestern assumed liability for up to $1.0 million of remediation
expenses relating to the Ice Business assets that were sold, with SEPSCO
remaining liable for remediation expenses not so assumed. See "Item 1.
Business -- Recent Transactions." SEPSCO believes that after such accrual
and assumption of liability, the ultimate outcome of this matter will not
have a material adverse effect on SEPSCO's consolidated results of
operations or financial condition. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Liquefied Petroleum Gas Business
SEPSCO, through Public Gas, distributes and sells liquefied petroleum gas
("LP gas") and related appliances and equipment throughout the state of
Florida, for residential, agricultural, commercial and industrial uses,
including, space heating, water heating, cooking and engine fuel. Following
the Reorganization, management of SEPSCO's LP gas business was transferred
to Triarc's National Propane subsidiary. In connection with the
Discontinued Operations Plan, it is expected that in the near future, SEPSCO
will transfer Public Gas' business to National Propane. The precise method
by which such business will be transferred, however, has not yet been
determined. Triarc has informed SEPSCO that prior to or in connection with
transferring such business, it intends to cause Public Gas, which is
currently 99.7% owned by SEPSCO, to become a wholly-owned subsidiary of
SEPSCO. For a more complete description of SEPSCO's LP gas business, see
"Business of Triarc Companies -- Business Segments -- Liquefied Petroleum
Gas (National Propane and Public Gas)" in SEPSCO's Proxy.
Natural Gas and Oil Interests
SEPSCO has working and royalty interests in natural gas and oil producing
properties located almost entirely in the states of Alabama, Kansas,
Kentucky, Louisiana, Mississippi, North Dakota, West Virginia and Texas.
SEPSCO produces most of the natural gas and all of the oil that it sells.
Natural gas produced by SEPSCO is sold to major marketers and pipeline
systems, under short and long-term contracts. Oil production is sold to
crude oil refiners. The business is not dependent upon a single customer.
SEPSCO has a very minor position in the natural gas and oil industry and
competes with many larger independent natural gas and oil producers as well
as with the major oil companies. This industry is not subject to seasonal
factors.
In the near future, SEPSCO expects to sell to Triarc the stock of
SEPSCO's subsidiaries that hold SEPSCO's natural gas and oil working and
royalty interests for a purchase price of $8.5 million. The sale will be
consummated on or before July 22, 1994.
Other Investments
Graniteville
SEPSCO owns 49% of the outstanding common stock of Graniteville, the
remaining 51% of which is held by a wholly-owned subsidiary of Triarc.
SEPSCO accounts for its investment in Graniteville on the equity method.
Graniteville manufactures, dyes, and finishes cotton, synthetic and blended
(cotton and polyester) apparel fabrics. Graniteville produces fabrics for
utility wear including uniforms and other occupational apparel, piece-dyed
fabrics for sportswear, casual wear and outerwear, indigo-dyed fabrics for
jeans, sportswear and outerwear and specialty fabrics for recreational,
industrial and military end-uses. Through its wholly-owned subsidiary, C.H.
Patrick & Co., Inc., Graniteville also produces and markets dyes and
specialty chemicals primarily to the textile industry. For additional
information regarding the business of Graniteville, see "Business of Triarc
Companies -- Business Segments -- Textiles (Graniteville)" in SEPSCO's
Proxy. As a result of the discontinuance of substantially all of SEPSCO's
other businesses, SEPSCO's investment in Graniteville will constitute its
largest asset. Because of Graniteville's significance to SEPSCO, financial
statements of Graniteville are included in this Form 10-K. See "Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K" below.
CFC Holdings
SEPSCO also has an investment in CFC Holdings. SEPSCO owns approximately
5.4% of the outstanding common stock of CFC Holdings, the remaining 94.6% of
which is owned by Triarc. SEPSCO accounts for its investment in CFC
Holdings on the equity method. CFC Holdings owns 100% of the outstanding
common stock of RC/Arby's Corporation, formerly known as Royal Crown
Corporation, whose principal subsidiaries are Royal Crown Company, Inc.
("Royal Crown") and Arby's, Inc. ("Arby's"). Royal Crown produces and sells
soft drink concentrates used in the production and distribution of soft
drinks by independent bottlers under the brand names RC COLA, DIET RC COLA,
DIET RITE COLA, DIET RITE flavors, NEHI, UPPER 10 and KICK. RC COLA is the
third largest national brand cola and is the only national brand cola
alternative available to non-Coca-Cola and non-Pepsi-Cola bottlers. Royal
Crown is also the exclusive supplier of proprietary cola concentrate to Cott
Corporation, which sells private label soft drinks to major retailers such
as Wal-Mart, A&P and Safeway. Arby's is the world's largest franchise
restaurant system specializing in roast beef sandwiches with an estimated
market share in 1993 of 65.1% of the roast beef sandwich segment of the
quick-service restaurant category. In addition, SEPSCO believes that Arby's
is the 14th largest restaurant chain in the United States, based on domestic
system-wide sales. Worldwide sales for the Arby's system were approximately
$1.6 billion in 1993. Arby's acts both as a franchisor and as an owner and
operator in a system that included 2,682 restaurants as of December 31,
1993, of which 259 were company-owned. For a more detailed description of
the business of Royal Crown and Arby's, see, respectively, "Business of
Triarc Companies -- Business Segments -- Soft Drinks (RC Cola)" and
"Business of Triarc Companies -- Business Segments -- Fast Food (Arby's)" in
SEPSCO's Proxy.
In addition, CFC Holdings also owns all of the outstanding common stock
of Chesapeake Insurance Company Limited ("Chesapeake Insurance"), which
historically provided certain property insurance coverage for Triarc, its
subsidiaries (including SEPSCO) and certain of Triarc's former affiliates
and reinsured a portion of certain insurance coverage which Triarc, its
subsidiaries (including SEPSCO) and such former affiliates maintained with
unaffiliated insurance companies. Chesapeake Insurance ceased writing
insurance or reinsurance of any kind for periods commencing on or after
October 1, 1993. SEPSCO also owns 15,000 shares of convertible redeemable
preferred stock of Chesapeake Insurance which it purchased in 1992 for $1.5
million. Because the loss reserves of Chesapeake Insurance for insurance
already written are approximately equal to its assets, Chesapeake
Insurance's equity has been permanently impaired, and no dividends or
liquidating distributions are expected to be made to Chesapeake Insurance's
equity holders. Both SEPSCO and CFC Holdings have, therefore, reduced the
value of the assets represented by their respective equity interests in
Chesapeake Insurance to zero. For further information regarding Chesapeake
Insurance, see "Business of Triarc Companies -- Discontinued and Other
Operations" in SEPSCO's Proxy.
Recent Transactions
In October 1993, SEPSCO sold the businesses that formerly constituted its
utilities and municipal services segment in three separate transactions.
The first two of these transactions involved the sale by SEPSCO to
Perkerson, Patton Management Corp. ("PPM Corp.") of the stock of each of
Wright & Lopez, Inc. ("Wright & Lopez"), through which SEPSCO conducted its
underground cable and conduit business, and Pressure Concrete Construction
Co., through which SEPSCO conducted its concrete refurbishment business.
These corporations were sold to PPM Corp. for a nominal amount subject to
the adjustments described below. PPM Corp. has agreed to pay, as deferred
purchase price, 75% of the net proceeds received from the sale or
liquidation of these corporations' assets (cash of approximately $1.8
million had been received as of December 31, 1993) plus, in the case of
Wright & Lopez, an amount equal to 1.25 times its adjusted book value as of
the second anniversary of such sale. At the time Wright & Lopez was sold to
PPM Corp., its adjusted book value was approximately $1.6 million. In
addition, SEPSCO paid an aggregate of $2.0 million during October and
November 1993 to cover the buyer's short-term operating losses and working
capital requirements for the construction related operations. SEPSCO
currently expects to break even on such sales, excluding any consideration
of the potential book value adjustment. The other transaction involved the
sale of substantially all of the assets of SEPSCO's tree maintenance
subsidiaries to Asplundh Tree Expert Co. ("Asplundh") for a purchase price
of approximately $69.6 million in cash and the assumption by Asplundh of
certain liabilities aggregating $5.0 million resulting in a loss of
approximately $4.8 million. The terms of each of these transactions was the
result of arms'-length negotiations between SEPSCO and PPM Corp. and
Asplundh, as the case may be. Neither PPM Corp. nor Asplundh is an
affiliate of SEPSCO.
In April 1994, SEPSCO sold to Southwestern substantially all of the
operating assets of SEPSCO's Ice Business for $5.0 million in cash and
approximately $4.3 million principal amount of subordinated secured notes
due on the fifth anniversary of the Ice Sale and the assumption by
Southwestern of certain current liabilities and certain environmental
liabilities. SEPSCO, however, retained certain real estate assets
associated with the Ice Business. An environmental remediation plan (the
"Remediation Plan") was prepared in connection with the Ice Sale. The
Remediation Plan indicated that remediation will be required at thirteen
sites which were sold or leased to Southwestern as part of the Ice Sale, and
such remediation will be made in conjunction with Southwestern, which is
responsible for payment of the first and third $500,000 of expenses incurred
in connection with the Remediation Plan, while SEPSCO remains liable for the
second $500,000 of expenses and any expenses in excess of $1.5 million.
Environmental Matters
Although SEPSCO has not performed any environmental audits on any of the
operations which it continues to own, other than with respect to the
properties sold or leased in connection with the Ice Sale and certain
inactive properties set forth below, SEPSCO currently does not anticipate
that present environmental regulations will materially affect the capital
expenditures, earnings or competitive position of any segment of SEPSCO's
businesses, except for expenditures for environmental remediation required
to be made in the remainder of its current fiscal year and thereafter in
connection with its refrigeration business. See "Item 1. Business --
Business Overview -- Refrigeration Services" above.
Working Capital
SEPSCO's working capital requirements have generally been fulfilled from
cash flow from operations, although from January 1991 through April 1993
SEPSCO had a credit facility with a commercial lender, secured by
substantially all of the accounts receivable of the tree maintenance
activities and the construction-related activities of the utility and
municipal services segment and certain other receivables. In connection
with the Reorganization, Triarc made certain payments on account of
indebtedness owed by it to SEPSCO, and SEPSCO used a portion of the proceeds
thereof to pay in full all amounts due under such credit facility, at which
time such facility was terminated.
Intellectual Property; Research and Development; Backlog
Patents, trademarks, licenses, franchises and concessions are not
material to any segment of SEPSCO's business. During Fiscal 1992, Fiscal
1993 and Transition 1993, SEPSCO had no material expenditures for research
and development activities. The existence of a forward order backlog is
not material to any segment of SEPSCO's businesses.
Employees
As of December 31, 1993, SEPSCO employed 624 employees, including
approximately 169 salaried employees. Approximately 187 of such employees
were covered by 13 collective bargaining agreements expiring from time to
time through 1996. SEPSCO believes that relationships with employees are
satisfactory.
Item 2. Properties.
Certain information about the materially important physical properties of
SEPSCO's operations as of December 31, 1993 is set forth in the following
table:
Sq. Ft. of
Business Facilities-Location Land Title Floor Space
Refrigeration Cold storage:
Topeka, KS 1 owned 266,000
Bonner Springs, KS 1 owned 919,000
Denver, CO 1 owned 202,000
San Martin, CA 1 owned 131,000
Santa Maria, CA 1 owned 318,000
Portland, OR 1 owned 200,000
American Falls, ID 1 owned 169,000
Other locations 3 owned 166,000
throughout the
United States
Liquefied Petroleum
Gas 27 Bulk Plants 18 owned *
(including retail 9 leased
depots)
Natural Gas Office/warehouse 2 leased 8,000
and Oil various locations 4 owned 6,000
throughout the 6 leased 10,000
United States
Other Facilities
(inactive)
Refrigeration Ice mfg. and cold
storage 3 owned 189,000
Ice mfg. 11 owned 69,000
_______________
*Liquefied petroleum gas facilities have approximately 2,579,000 gallons of
storage capacity.
The natural gas and oil operations have net working interests in
approximately 61,000 acres and net royalty interests in approximately 4,000
acres, located almost entirely in the states of Alabama, Kentucky,
Louisiana, Mississippi, North Dakota, Texas and West Virginia. The Ice
Business operations, which were sold in April 1994, consisted of 12
facilities with approximately 450,000 total square feet.
The Company's management believes that the properties of the
operations that the Company continues to own, taken as a whole, are
generally well maintained and are adequate for current and foreseeable
business needs. The majority of the properties are owned by the Company.
All of the properties owned in fee by the Company are without encumbrances,
except minor ones which do not affect the use thereof in the Company's
business. Except as set forth in the table above with respect to properties
listed as inactive, substantially all of the Company's materially important
physical properties were being fully utilized as of December 31, 1993.
Item 3. Legal Proceedings.
In December 1990, the Action was brought against Triarc and other
defendants on behalf of SEPSCO. As a result of the Merger, the court in
which the Action is pending will permanently bar and enjoin the institution
or prosecution of all claims arising out of or in any way relating to the
Action against Triarc and certain of its affiliates. For a detailed
description of such legal proceedings, see "Special Factors -- Background to
the Merger; Reasons for the Merger -- Legal Proceedings Related to SEPSCO
and Triarc" in SEPSCO's Proxy.
In addition to the Action and the matters referred to or described
under "Item 1. Business -- Environmental Matters," the Company is involved
in claims, litigation and administrative proceedings and investigations of
various types in several jurisdictions. Such matters arise in the ordinary
course of the Company's business, and it is the opinion of the Company's
management that the outcome of any such matter, or all of them combined,
will not have a material adverse effect on the Company's business or
consolidated financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
As a result of the Merger, (a) SEPSCO became a wholly-owned subsidiary
of Triarc and (b) in the near future, SEPSCO's common stock will be delisted
from the PSE and the registration of such stock under the 1934 Act will be
terminated. Historically, however, the principal market for the SEPSCO
Common Stock has been the PSE (symbol: SPV). The high and low closing
prices of the SEPSCO Common Stock as reported in the consolidated
transaction reporting system are as follows:
Market Prices
--------------
Calendar Quarters High Low
----------------- --------------
1991
First Quarter............................. $ 3-3/8 $ 1-7/8
Second Quarter............................ 2-3/8 1-3/8
Third Quarter............................. 1-7/8 7/8
Fourth Quarter............................ 2-1/4 13/16
1992
First Quarter............................. $ 6-5/8 $ 1-1/2
Second Quarter............................ 7-1/8 4-3/4
Third Quarter............................. 9-1/4 5-5/8
Fourth Quarter............................ 14 8-5/8
1993
First Quarter............................. $14-1/2 $12-5/8
Second Quarter............................ 16-1/2 14-1/8
Third Quarter............................. 24-7/8 15-1/8
Fourth Quarter............................ 24-1/4 18-7/8
1994
First Quarter............................. $20-1/8 $14-5/8
No dividends have been paid or declared on the SEPSCO Common Stock in
the three most recent fiscal years, during Transition 1993, or in the
current year to date.
Under the provisions of the Debentures, the payment of cash dividends
and the acquisition of shares of SEPSCO's capital stock by SEPSCO are
limited to the sum of (i) 50% of the aggregate consolidated net income after
November 30, 1982 (exclusive of equity in the net income (loss) of
affiliates), (ii) the aggregate net proceeds received from the sale of
capital stock and (iii) $7.5 million. Under such provisions, at December
31, 1993 SEPSCO was not permitted to pay cash dividends or acquire shares of
SEPSCO's capital stock. The payment of cash dividends is also dependent
upon, among other things, the availability of current and retained earnings.
SEPSCO does not presently anticipate the declaration of cash dividends on
the SEPSCO Common Stock in the near future.
As a result of the Merger, on April 14, 1994, all of the outstanding
shares of SEPSCO's voting securities were held by Triarc.
PAGE
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Ten months
ended
Fiscal Fiscal Fiscal Fiscal December
1990 1991 1992 1993 31, 1993
------ ------ ------ ------ --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $ 27,104 $ 29,154 $ 29,220 $ 28,520 $ 23,394
Operating profit 3,922 3,181 4,571 3,634 1,745
Income from continuing operations 7,716 4,245 6,332 12,572 2,030
Loss from discontinued operations,
net of income taxes (2,256) (7,899) (225) (5,542) (23,355)
Equity in extraordinary items
of affiliates 748 794 -- (348) --
Cumulative effect of changes in
accounting principles of:
Equity in affiliates -- -- -- (5,954) (102)
The Company -- -- -- -- 7,617
Net income (loss) 6,208 (2,860) 6,107 728 (13,810)
Preferred stock dividend requirements (16) (8) (1) (1) (1)
Net income (loss) applicable to
common stockholders (2) 6,192 (2,868) 6,106 727 (13,811)
Income (loss) per share (3):
Continuing operations .66 .36 .54 1.08 .18
Discontinued operations (.19) (.68) (.02) (.48) (2.00)
Extraordinary items of affiliate .06 .07 -- (.03) --
Cumulative effect of changes in
accounting principles of affiliate -- -- -- (.51) .64
Net income (loss) .53 (.25) .52 .06 (1.18)
Total assets 196,498 191,788 208,330 206,253 169,397
Long-term debt included in
continuing operations 71,458 64,005 56,457 49,223 50,258
Stockholders' equity (4) 88,503 85,010 107,503 108,230 94,419
<FN>
- ----------
(1) Selected Financial Data have been retroactively restated to reflect the discontinuance of utility and municipal
services, refrigeration and natural gas and oil operations for the ten months ended December 31, 1993.
(2) SEPSCO has not paid any dividends on its common shares during any of the periods presented.
(3) Weighted average common shares outstanding were 11,655,067 for each of the periods presented.
(4) Stockholders' equity increased by $15,210 in Fiscal 1992 as a result of the reduction in equity ownership of an
affiliate.
</TABLE>
PAGE
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
TEN MONTHS ENDED DECEMBER 31, 1993 COMPARED WITH THE TEN MONTHS ENDED
DECEMBER 31, 1992 (UNAUDITED)
Net sales increased from $22.4 million in the ten months ended December
31, 1992 ("Comparable 1992") to $23.4 million in the ten months ended
December 31, 1993 ("Transition 1993") principally as a result of higher
volumes of LP gas due to colder weather in the regions serviced by such
business in Transition 1993, partially offset by slightly lower average
selling prices which resulted from lower product costs.
Operating profit decreased from $2.5 million in Comparable 1992 to $1.7
million in Transition 1993 principally due to an increase in selling,
general and administrative expenses which resulted from a facilities
relocation and corporate restructuring charge of $0.8 million relating to
continuing operations (see Note 14 to the consolidated financial
statements), partially offset by a slight increase in gross profit.
Interest expense was favorably impacted due primarily to the lower debt
outstanding and, to a much lesser extent, lower interest rates during
Transition 1993.
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles and extraordinary items of affiliate was unfavorably
impacted in Transition 1993 primarily due to the following equity in
significant charges of affiliates: (i) a $1.9 million charge recorded in
Transition 1993 related to facilities relocation and corporate
restructuring, (ii) $0.9 million of estimated cost allocated to the
affiliates by Triarc for compensation paid to a special committee relating
to the change in control of Triarc and affiliates which took place April 23,
1993, (iii) $1.2 million from the write-off of Graniteville Company's
("Graniteville") investment in Chesapeake Insurance Company Limited
("Chesapeake Insurance") and (iv) $0.5 million from insurance loss reserves
recorded by Chesapeake Insurance.
Interest income from Triarc was unfavorably impacted due to lower debt
outstanding in Transition 1993.
SEPSCO also wrote off its $1.5 million investment in Chesapeake
Insurance since such investment is no longer deemed recoverable as a result
of Chesapeake Insurance reducing its stockholders' equity to a minimal
amount following additional provisions for insurance losses of $10.0 million
during Transition 1993 and the decision by Triarc effective October 1993 to
cease writing new insurance or reinsurance of any kind through Chesapeake
Insurance.
The benefit from income taxes increased from $0.3 million during
Comparable 1992 to $1.2 million in Transition 1993. The Transition 1993
benefit resulted primarily from the equity in earnings of affiliates.
Loss from discontinued operations, net of income taxes increased $22.7
million from $0.7 million in Comparable 1992 to $23.4 million in Transition
1993 primarily due to the following reasons:
In connection with the consummation of the sales of the tree maintenance
services operations and the construction related operations and the
letter of intent to sell (and subsequent sale) of the ice operations,
SEPSCO reevaluated the estimated gain or loss from the sale of its
discontinued operations and provided $13.9 million for the estimated
loss on the sale of the discontinued operations during Transition 1993.
The revised estimate principally reflects (i) $4.6 million of losses
from the sales of the operations comprising the utility and municipal
services business segment previously estimated to be approximately
break-even, (ii) $6.7 million of losses from the sale of operations
comprising the refrigeration business segment previously estimated to be
a gain of $1.6 million, (iii) $2.5 million of estimated losses from
operations from July 22, 1993 to the actual or estimated disposal dates
and (iv) less previously estimated losses of $1.5 million from the sale
of the natural gas and oil business segment which now will be sold to
Triarc and accounted for as a transfer between entities under common
control at net book value. The net loss from the sale of the utility
and municipal services business segment reflects a reduction of $1.8
million in the estimated sales price for the construction related
operations from previous estimates, a $2.0 million reduction in
anticipated proceeds from asset sales by July 22, 1994, and other
adjustments in finalizing the loss on the sale of the tree maintenance
services operations. The reduction in proceeds from asset sales results
from the buyer of such businesses successfully negotiating extensions of
certain major contracts with respect to the larger of such businesses
and as a result no longer intending to immediately dispose of the major
portion of the assets. Should the buyer hold such assets through
October 5, 1995, the $2.0 million reduction in proceeds would be
effectively realized through the Book Value Adjustment (see subsequent
discussion). The $8.2 million change relating to the sales of the
refrigeration business segment principally results from (i) a $4.0
million reduction in the sales price for the ice operations and (ii) a
$4.0 million reduction in the estimated sales price of the cold storage
operations based on preliminary sales discussions and experience with
respect to negotiating the sale of the other operations.
SEPSCO recorded an $8.0 million write-down relating to the impairment of
certain unprofitable properties in Transition 1993.
During Transition 1993 SEPSCO was allocated by Triarc as well as
directly incurred certain facilities relocation and corporate
restructuring charges totaling $4.7 million, of which $3.9 million
was allocated to discontinued operations (see Note 14 to the
consolidated financial statements for a further discussion).
Operating profits of certain business segments through July 22, 1993,
exclusive of the above charges, also declined. The tree maintenance
activities experienced a decline in earnings due to higher insurance
costs, losses on certain contracts and start-up costs on new crews. The
flooding conditions experienced during the second quarter of Transition
1993 prevented the generation of revenues by crews added in anticipation
of increased workload, whereas the Comparable 1992 period was favorably
affected by the additional work in connection with Hurricane Andrew.
The construction related activities experienced a decline due to a lower
number of contracts in progress and losses experienced on existing
contracts. Refrigeration operations had lower margins due to lower
revenues from cold storage due to lower occupancy rates and lower
margins in the ice operations due to competitive conditions.
The above charges were partially offset by the effect of deferring the
$3.8 million net loss from discontinued operations subsequent to July
22, 1993, the measurement date, through December 31, 1993 which was
considered in the loss on disposal of discontinued operations. SEPSCO
expects that such net losses will be offset by seasonal net income of
the natural gas and oil operations through its disposal date.
Effective March 1, 1993, SEPSCO changed its method of accounting for
income taxes when it adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109").
The cumulative effect on prior years of the change in accounting principles
decreased the net loss for Transition 1993 by $7.6 million or $.64 per
share. Effective March 1, 1992 Graniteville adopted SFAS 109 and Statement
of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions". The change in accounting
principles resulted in charges amounting to $6.0 million, (net of taxes of
$0.4 million), or $.51 per share, which was reflected in the consolidated
statement of operations in Fiscal 1993.
FISCAL 1993 COMPARED WITH FISCAL 1992
Net sales decreased from $29.2 million in Fiscal 1992 to $28.5 million
in Fiscal 1993 due to a decrease in the average selling prices, coupled with
a slight decrease in volume due to unseasonably warmer weather and increased
competitive conditions.
Operating profit decreased from $4.6 million in Fiscal 1992 to $3.6
million in Fiscal 1993 principally due to the decrease in sales as explained
above, and to a lesser extent higher cost of product.
Equity in earnings of affiliates before extraordinary items and
cumulative effect of changes in accounting principles increased from $5.2
million in Fiscal 1992 to $12.2 million in Fiscal 1993 due to increased
earnings of Graniteville.
The gain on sale of marketable security of $6.0 million resulted from
the recognition of a gain previously deferred on the sale of the common
stock of an unaffiliated company to Triarc which had been previously
deferred until collection of a note was assured. As such note was collected
in April 1993 prior to the issuance of the Fiscal 1993 consolidated
financial statements, the gain was recorded in Fiscal 1993.
Gains on repurchase of debentures for sinking fund requirement decreased
from $4.0 million in Fiscal 1992 to $0.1 million in Fiscal 1993 due to the
market price of the Debentures which increased to above par, and
accordingly, since the repurchase of the Debentures was no longer
beneficial, the sinking fund requirement was principally made in cash.
Other, net decreased from income of $0.4 million in Fiscal 1992 to
expense of $1.1 million in Fiscal 1993 principally due to a $1.3 million
accrual for the proposed settlement of the Ehrman Litigation in Fiscal 1993.
Provision for income taxes as a percentage of income from continuing
operations before income taxes for Fiscal 1993 was lower than the statutory
rate due to the equity in earnings of affiliates on which income taxes were
provided only on the portion remaining after an 80% dividend exclusion.
Loss from discontinued operations, net of income taxes, increased from
$0.2 million in Fiscal 1992 to $5.5 million in Fiscal 1993 principally due
to a $4.7 million reduction in gross profit in the utility and municipal
services segment due to competitive conditions experienced principally in
the construction related activities and the tree maintenance operations due
to intensely competitive bidding in the first quarter of Fiscal 1993 which
resulted in losses of certain contracts, most of which were replaced by ones
with lower margins and the adjustment of prices to retain certain other
existing contracts. Also, the refrigeration operations recorded a $2.1
million accrual before income taxes for potential environmental remediation
in Fiscal 1993, whereas Fiscal 1992 included a credit of $1.4 million as
proceeds from settlement of certain litigation of the construction
operations. These factors were partially offset by a benefit from income
taxes of $2.4 million in Fiscal 1993 compared to a benefit from income taxes
of $0.3 million in Fiscal 1992.
Equity in cumulative effect of changes in accounting principles of
affiliate of $6.0 million resulted from Graniteville's adoption of SFAS 109
and SFAS 106 during Fiscal 1993.
Equity in extraordinary items of affiliate of $0.3 million in Fiscal
1993 resulted from the early extinguishment of debt by CFC Holdings.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1993 and December 31, 1993 cash and equivalents,
excluding restricted cash, amounted to $0.2 million and $33.6 million
(including ($10.8 million of marketable securities), respectively. The
$22.6 million increase in cash is principally a result of the remaining
excess proceeds from the sale of the tree maintenance services operations
(see subsequent discussion). Total debt, excluding the debt of the
discontinued operations, amounted to $58.3 million and $59.3 million at
February 28, 1993 and December 31, 1993, respectively.
As previously reported, a change in control of Triarc occurred on April
23, 1993 (the "Closing Date"), which as a result of Triarc's ownership of
SEPSCO's voting securities constituted a change in control of SEPSCO. In
connection therewith SEPSCO received from Triarc $27.1 million in cash and
$3.5 million in the form of an offset of amounts due to Triarc as of April
23, 1993 in connection with the providing by Triarc of certain management
services to SEPSCO. The aggregate $30.6 million of payments by Triarc
included full payment of $6.8 million (including $0.3 million of accrued
interest) on an unsecured promissory note issued to SEPSCO by Triarc in
connection with the 1988 sale of an investment and partial payment of $23.8
million (including $1.4 million of accrued interest) on a $49.0 million
promissory note due to SEPSCO resulting from the 1986 sale of approximately
51% of Graniteville's common stock to Triarc, as described below. SEPSCO
used the $27.1 million of cash proceeds to pay $12.7 million due under its
accounts receivable financing arrangement which was then terminated and to
pay $14.4 million (including $0.4 million of accrued interest) owed to
Chesapeake Insurance Company Limited ("Chesapeake Insurance").
At December 31, 1993 SEPSCO holds a promissory note (the "Note") of
$28.0 million (including $1.4 million of accrued interest) from Triarc,
which is included in "Due from Triarc Companies, Inc." in the consolidated
balance sheet, which had an original face amount of approximately $49.0
million, bearing interest at the annual rate of 13% payable semi-annually.
As described above, on the Closing Date, SEPSCO received partial payment of
the Note of approximately $23.8 million including $1.4 million of accrued
interest from Triarc. The Note, after giving effect to such prepayment, is
due in August 1998 and resulted from the 1986 sale of approximately 51% of
the outstanding common shares of Graniteville to Triarc and is secured by
such shares. The Note is subordinated to senior indebtedness of Triarc to
the extent, if any, that the payment of principal and interest thereon is
not satisfied out of proceeds of the pledged Graniteville shares.
SEPSCO has not received any cash dividends from its investment in
Graniteville during Transition 1993 compared with $3.0 million in Fiscal
1993.
Under its present credit agreement, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO in
an amount equal to 50% of the net income of Graniteville accumulated from
the beginning of the first fiscal year commencing on or after December 20,
1994, provided that the outstanding principal balance of Graniteville's term
loan is less than $50.0 million at the time of the payment (the outstanding
principal balance was $72.5 million as of December 31, 1993) and certain
other conditions are met. Accordingly, Graniteville is unable to pay any
dividends or make any loans or advances to SEPSCO prior to December 31,
1995.
SEPSCO is required to pay interest on its 11 7/8% Senior Subordinated
Debentures due February 1, 1998 (the "Debentures") semi-annually on February
1 and August 1 of each year. Interest payments due February 1, 1994 and
August 1, 1994 aggregate $6.9 million. SEPSCO is also required to retire
annually, through the operation of a mandatory sinking fund, $9.0 million
principal amount of the Debentures on February 1 of each year. The
indenture pursuant to which the Debentures were issued (the "Indenture")
provides that, in lieu of making such payment in cash, SEPSCO may credit
against the mandatory sinking fund requirement the principal amount of
Debentures acquired by SEPSCO other than through the sinking fund. On
February 1, 1994, SEPSCO satisfied such sinking fund requirement by payment
of $9.0 million in cash through cash received from the sale of the tree
maintenance services operations rather than through the delivery of
Debentures.
The indenture contains a provision which limits to $100.0 million the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. At December 31, 1993 such indebtedness
was $59.3 million resulting in allowable additional indebtedness, if SEPSCO
desired to make such borrowings and if such financing could be obtained, of
$40.7 million.
On October 18, 1993, Triarc entered into a Settlement Agreement (the
"Settlement Agreement") with the plaintiff (the "Plaintiff") in the Ehrman
Litigation. The Settlement Agreement provides, among other things, that
SEPSCO would be merged into, or otherwise acquired by, Triarc or an
affiliate thereof, in a transaction in which each holder of SEPSCO's Common
Stock other than Triarc will receive in exchange for each share of SEPSCO's
Common Stock, 0.8 shares of Triarc's Class A Common Stock. On November 22,
1993 Triarc and SEPSCO entered into a merger agreement (the"Merger"). The
Settlement Agreement was approved by the United States District Court For
the Southern District of Florida on January 11, 1994 and the Merger was
approved on April 14, 1994 by SEPSCO's stockholders other than Triarc. The
Merger was consummated on April 14, 1994 pursuant to which a subsidiary of
Triarc was merged into SEPSCO in the manner described in the Settlement
Agreement. Following the Merger, Triarc owns 100% of the SEPSCO Common
Stock.
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of the utility and municipal services, refrigeration and natural
gas and oil businesses. Accordingly, SEPSCO has retroactively restated the
consolidated financial statements for each of the periods shown to reflect
all of such businesses as discontinued operations through July 22, 1993.
The operating results of the discontinued operations subsequent to July 22,
1993 have been deferred which was anticipated in the loss on disposal of
discontinued operations and are included in "Net current liabilities of
discontinued operations" in the consolidated balance sheets. In addition,
on July 22, 1993 SEPSCO Board of Directors authorized the sale or
liquidation of the liquefied petroleum gas business. Sepsco intends to
transfer the liquified petroleum gas business to a subsidiary of Triarc and
the transfer would be accounted for at net book value. The precise nature
of such transfer has not been determined and is expected to occur by July
22, 1994. Based on these facts SEPSCO has continued to reflect the
liquified petroleum gas business as a continuing operation. On December 9,
1993 SEPSCO's Board of Directors decided to sell the natural gas and oil
business to Triarc following the Merger and the resulting minority interest
in SEPSCO rather than selling such business to an independent third party.
Such sale will be in the form of a sale of the stock of the entities
comprising the natural gas and oil business for cash of $8.5 million which
is equal to their fair value and approximately $4.0 million higher than
their net book value.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal
services business segment for $69.6 million in cash plus the assumption by
the purchaser of $5.0 million in current liabilities resulting in a loss of
$4.8 million. The $22.8 million cash balance as of December 31, 1993 is
principally a result of such cash proceeds, less the repayment of $24.1
million of capitalized lease obligations relating to the tree maintenance
services operations, repayment of $1.1 million of amounts due to Triarc,
payment of $2.0 million to the purchasers of the construction related
operations (see below) and general operating requirements since October 15,
1993. On October 7, 1993 SEPSCO sold the stock of its two construction
related operations previously included in its utility and municipal services
business segment for a nominal amount subject to adjustments described
below. As the related assets are sold or liquidated the purchasers have
agreed to pay, as deferred purchase price, 75% of the net proceeds received
therefrom (cash of $1.8 million had been received as of December 31, 1993)
plus, in the case of one of the two entities, an amount equal to 1.25 times
the adjusted book value of such entity as of October 5, 1995 (the "Book
Value Adjustment"). As of October 7, 1993, the adjusted book value of the
assets of that entity aggregated approximately $1.6 million. In addition,
SEPSCO paid $2.0 million in October and November 1993 to cover the buyer's
short-term operating losses and working capital requirements for the
construction related operations. SEPSCO currently expects to break-even the
sales of the construction related operations excluding any consideration of
the potential Book Value Adjustment.
On April 8, 1994 SEPSCO sold substantially all of the operating assets
of the ice operations of its refrigeration business segment for $5.0 million
in cash, a $4.3 million note (discounted value $3.3 million) and the
assumption by the buyer of certain current liabilities of up to $1.0
million. While the loss on the sale has not been finalized, SEPSCO
currently estimates it will approximate $2,500,000. The note, which bears
no interest during the first year and 5% thereafter, would be payable in
installments of $120.0 thousand in 1995 through 1998 with the balance of
approximately $3.8 million due in 1999. The only remaining discontinued
operation to be sold to an independent third party is the cold storage
operation of the refrigeration business. The precise timetable for the sale
and liquidation of the cold storage operation will depend upon SEPSCO's
ability to identify appropriate potential purchasers and to negotiate
acceptable terms for the sale of such operation. SEPSCO currently
anticipates completion of such sales by July 22, 1994.
SEPSCO has $5.3 million of restricted cash and equivalents which support
letters of credit which collateralize certain performance and other bonds
relating to the utility and municipal services business segment. SEPSCO
anticipates that buyers of the segment will provide the collateral for such
bonds or that the performance secured by the bond will be completed and the
restricted cash will revert to SEPSCO free of restrictions and at that time
be used for general corporate purposes.
SEPSCO had cash provided by operations of $4.1 million during Transition
1993. Such cash requirements, excluding cash flows from operations, for
1994 will include $3.9 million of capital expenditures, of which SEPSCO
intends to seek financing from banks and other sources for $3.2 million, as
well as a $9.0 million sinking fund payment on the Debentures (paid February
1, 1994). SEPSCO expects to meet all of its cash requirements during 1994
with the aforementioned financing for capital expenditures and its existing
cash balances principally derived from the sale of the tree maintenance
services operations.
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report prepared by Graniteville's environmental consulting firm and filed
with DHEC in April 1990, recommended that pond sediments be left undisturbed
and in place. DHEC responded by requesting that Graniteville submit
additional information concerning potential passive and active remedial
alternatives, with accompanying supportive information. In May 1991
Graniteville provided this information to DHEC in a report of Graniteville's
environmental consulting firm. The 1990 and 1991 reports concluded that
pond sediments should be left undisturbed and in place and that other less
passive remediation alternatives either provided no significant additional
benefits or themselves involved adverse effects on human health, to existing
recreational uses or to the existing biological communities. SEPSCO is
unable to predict at this time what further actions, if any, may be required
in connection with Langley Pond or what the cost thereof may be. However,
given the passage of time since the submission of the two reports by DHEC
and the absence of desirable remediation alternatives, other than continuing
to leave the Langley Pond sediments in place and undisturbed as described in
the reports, SEPSCO believes the ultimate outcome of this matter will not
have a material adverse effect on SEPSCO's consolidated results of
operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's refrigeration operations and has filed appropriate notifications
with state environmental authorities and has begun a study of remediation at
such sites. SEPSCO has removed certain underground storage and other tanks
at certain facilities of its refrigeration operations and has engaged in
certain remediation in connection therewith. Such removal and environmental
remediation involved a variety of remediation actions at various facilities
of SEPSCO located in a number of jurisdictions. Such remediation varied
from site to site, ranging from testing of soil and groundwater for
contamination, development of remediation plans and removal in certain
instances of certain contaminated soils. Based on preliminary information
and consultations with, and certain reports of, environmental consultants
and others, SEPSCO presently estimates the cost of such remediation and/or
removal will approximate $3.7 million, all of which was provided in prior
years. In connection therewith, SEPSCO has incurred actual costs through
December 31, 1993 of $1.2 million and has a remaining accrual of $2.5
million. SEPSCO believes that after such accrual the ultimate outcome of
this matter will not have a material adverse effect on SEPSCO's consolidated
results of operations or financial position.
PAGE
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - February 28, 1993
and December 31, 1993
Consolidated Statements of Operations and Retained
Earnings (Deficit) - Two years ended February 28,
1993 and ten months ended December 31, 1993
Consolidated Statements of Cash Flows - Two years
ended February 28, 1993 and ten months ended
December 31, 1993
Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
SOUTHEASTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheets of
Southeastern Public Service Company (a Delaware corporation and a 71.1% owned
subsidiary of Triarc Companies, Inc., formerly DWG Corporation, prior to
April 14, 1994 and a wholly-owned subsidiary thereafter) and subsidiaries as
of February 28, 1993 and December 31, 1993 and the related consolidated
statements of operations and retained earnings (deficit) and cash flows for
each of the two years in the period ended February 28, 1993 and the ten
months ended December 31, 1993. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Southeastern
Public Service Company and subsidiaries as of February 28, 1993 and December
31, 1993, and the results of their operations and their cash flows for each
of the two years in the period ended February 28, 1993 and for the ten months
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 1 to the consolidated financial statements,
the Company's 49% owned affiliate accounted for under the equity method and
the Company changed their methods of accounting for income taxes and
postretirement benefits other than pensions, effective March 2, 1992 and
March 1, 1993, respectively.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item 14.(A)
2. are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Miami, Florida,
April 14, 1994.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
February December
28, 1993 31, 1993
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ($ - and $20,646) $ 239 $ 22,813
Restricted cash (Note 4) 5,264 5,264
Marketable securities (Note 1) -- 10,795
Receivables (less allowance for doubtful
accounts of $269 and $283) 3,301 4,734
Finished goods inventories 733 850
Due from Triarc Companies, Inc., net
(less unamortized deferred discount
of $39) (Note 5) 25,717 --
Other current assets 1,386 835
Net current assets of discontinued operations
(Note 3) 1,987 --
-------- --------
Total current assets 38,627 45,291
Properties, net (Note 6) 7,825 7,228
Due from Triarc Companies, Inc., net (Note 5) 26,538 25,358
Investments in affiliates (Notes 7 and 14) 65,327 68,211
Other assets 1,752 1,627
Net non-current assets of discontinued
operations (Note 3) 66,184 21,682
-------- --------
$206,253 $ 169,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9) $ 9,046 $ 9,045
Note payable to affiliate (Notes 5 and 13) 14,043 --
Accounts receivable financing 9,536 --
Accounts payable 2,249 3,430
Accrued interest 763 3,160
Other accrued expenses 3,861 4,240
Net current liabilities of discontinued
operations (Note 3) -- 2,800
-------- --------
Total current liabilities 39,498 22,675
Long-term debt (less unamortized deferred
discount of $5,282 and $4,203)(Notes 1 and 9) 49,223 50,258
Deferred income taxes (Note 8) 7,230 --
Other liabilities 2,072 2,045
Commitments and contingencies (Notes 3, 8, 11 and 15)
Stockholders' equity (Note 10):
Series B, convertible preferred stock, $50 par
value; 267,600 shares authorized; 490 shares
issued 24 24
Common stock, $1 par value; 25,000,000 shares
authorized; 11,896,136 shares issued 11,896 11,896
Additional paid-in capital 90,539 90,539
Retained earnings (deficit) 6,637 (7,174)
-------- --------
109,096 95,285
Less 241,069 common shares in treasury, at cost 866 866
-------- --------
Total stockholders' equity 108,230 94,419
-------- --------
$206,253 $169,397
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Deficit)
(In thousands except per share amounts)
<CAPTION>
Year ended Ten months
-------------------- ended
February February December
29, 1992 28, 1993 31, 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 29,220 $28,520 $ 23,394
-------- -------- --------
Costs and expenses:
Cost of sales 21,989 22,165 18,322
Selling, general and administrative
expenses 2,660 2,721 3,327
-------- -------- --------
24,649 24,886 21,649
-------- -------- --------
Operating profit 4,571 3,634 1,745
-------- -------- --------
Other income (expense):
Interest expense (13,740) (13,901) (8,252)
Equity in earnings of affiliates
before cumulative effect of
changes in accounting principles
and extraordinary items of
affiliate (Note 7) 5,201 12,161 4,489
Interest income from Triarc Companies,
Inc. (Note 5) 7,336 7,336 3,526
Gain on sale of marketable security
(Note 5) -- 6,000 --
Gains on repurchase of debentures for
sinking fund (Note 9) 3,960 117 --
Write-off of investment in Chesapeake
Insurance Company Limited -- -- (1,500)
Other, net (Note 15) 440 (1,104) 827
-------- -------- --------
3,197 10,609 (910)
-------- -------- --------
Income from continuing operations
before income taxes 7,768 14,243 835
Benefit from (provision for) income
taxes (Note 8) (1,436) (1,671) 1,195
-------- -------- --------
Income from continuing operations 6,332 12,572 2,030
Loss from discontinued operations,
net of income taxes (Note 3) (225) (5,542) (23,355)
-------- -------- --------
Income (loss) before equity in
extraordinary items of affiliate and
cumulative effect of changes in
accounting principles 6,107 7,030 (21,325)
Equity in extraordinary items
of affiliate (Note 7) -- (348) --
Cumulative effect of changes in accounting
principles:
Equity in affiliates -- (5,954) (102)
The Company -- -- 7,617
-------- -------- --------
Net income (loss) 6,107 728 (13,810)
Retained earnings (deficit) at beginning
of period (196) 5,910 6,637
Cash dividends ($2.75 per share) on Series
A Redeemable preferred stock (1) (1) (1)
-------- -------- --------
Retained earnings (deficit) at end
of period $ 5,910 $ 6,637 $ (7,174)
======== ======= ========
Income (loss) per share (Note 1):
Continuing operations $ .54 $ 1.08 $ .18
Discontinued operations (.02) (.48) (2.00)
Extraordinary items of affiliate -- (.03) --
Cumulative effect of changes in
accounting principles -- (.51) .64
-------- -------- --------
Net income (loss) $ .52 $ .06 $ (1.18)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Year ended Ten months
------------------ ended
February February December
29, 1992 28, 1993 31, 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,107 $ 728 $(13,810)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation of properties 1,231 1,246 1,004
Amortization of deferred financing costs
and debt discount 1,755 1,663 1,296
Amortization of deferred discount on
notes receivable from Triarc
Companies, Inc. (109) (126) (39)
Provision for doubtful accounts 209 188 140
Write-off of investment in Chesapeake
Insurance Company Limited -- -- 1,500
Gains on purchases of 11 7/8% Senior
Subordinated Debentures (3,960) (117) --
Gain on sale of marketable security -- (6,000) --
Dividends from unconsolidated affiliate 1,038 3,004 --
Equity in net earnings of affiliates (4,792) (5,014) (4,387)
Cumulative effect of changes in
accounting principles -- -- (7,617)
Loss from discontinued operations 225 5,542 23,355
Provision for (benefit from) deferred
income taxes 275 1,261 (1,195)
Other, net 1,064 (36) 1,730
Decrease (increase) in:
Receivables 370 (312) (1,573)
Inventories 74 292 (117)
Other current assets (565) (481) (112)
Increase (decrease) in:
Accounts payable (1,070) 575 1,181
Other accruals (1,321) (873) 2,776
-------- -------- --------
Net cash provided by
operating activities 531 1,540 4,132
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries, net -- -- 43,002
Investments in marketable securities -- -- (10,795)
Capital expenditures (100) (656) (411)
Proceeds from sales of properties 160 73 178
Note receivable from Triarc
Companies, Inc. -- 3,828 25,379
Investment in affiliate (1,500) -- --
-------- -------- --------
Net cash provided by (used in)
investing activities (1,440) 3,245 57,353
-------- -------- --------
Cash flows from financing activities:
Net proceeds from (repayments of)
accounts receivable financing 2,911 747 (9,536)
Repayments of long-term debt (5,651) (9,249) --
Proceeds from (repayments of)
notes payable to affiliate 5,643 8,400 (14,043)
Other (1) (1) (224)
-------- -------- --------
Net cash provided by (used in)
financing activities 2,902 (103) (23,803)
-------- -------- --------
Net cash provided by continuing operations 1,993 4,682 37,682
Net cash used by discontinued operations (2,186) (4,725) (15,108)
-------- ------- --------
Net increase (decrease) in cash and Cash
equivalents (193) (43) 22,574
Cash and cash equivalents at beginning
of period 475 282 239
-------- -------- --------
Cash and cash equivalents at end
of period $ 282 $ 239 $ 22,813
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $11,910 $11,401 $ 6,402
======== ======== ========
Income taxes $ 1,050 $ 2,204 $ 490
======== ======== ========
</TABLE>
Other:
During the years ended February 29, 1992 and February 28, 1993 and ten
months ended December 31, 1993, Southeastern Public Service Company
("SEPSCO"), a 71.1% owned subsidiary of Triarc Companies, Inc. ("Triarc",
formerly DWG Corporation) prior to April 14, 1994 and a 100% owned subsidiary
of Triarc thereafter, received interest payments from Triarc of $7,209,
$6,026 and $3,308, respectively, in the form of offsets against amounts due
from SEPSCO to Triarc. During the year ended February 28, 1993, amounts
payable to Triarc were netted against a $6,500 promissory note receivable
form Triarc (see Note 5).
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Southeastern Public Service Company ("SEPSCO"), a 71.1% owned subsidiary of
Triarc Companies, Inc. ("Triarc", formerly DWG Corporation) prior to April
14, 1994 and a 100% owned subsidiary of Triarc thereafter (see Note 15), and
its subsidiaries. Due to their planned sale or liquidation (see Note 3),
all subsidiaries, except for the liquefied petroleum gas business, have been
reflected as discontinued operations. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain amounts in
the prior years have been reclassified to conform to the current year
presentation.
On October 27, 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO from a fiscal year ending February 28 to a calendar
year ending December 31, effective for the transition period ending December
31, 1993. Graniteville Company ("Graniteville"), a 49% owned investment,
also changed its fiscal year to a calendar year ending December 31. As used
herein, "Fiscal 1992" and "Fiscal 1993" refer to the years ended February
28, 1992 and 1993, respectively, and "Transition 1993" refers to the ten
months ended December 31, 1993. SEPSCO's consolidated financial statements
for each of the periods in Fiscal 1992, Fiscal 1993 and Transition 1993
include the results of Graniteville as a 49% owned affiliate and CFC
Holdings Corp. ("CFC Holdings") as a 5.4% owned affiliate. Both investments
are accounted for on the equity method. Also, as used herein February 28
shall mean the last day of SEPSCO's fiscal year for Fiscal 1992 and Fiscal
1993.
Cash Equivalents
SEPSCO considers all highly liquid instruments with an original maturity
of three months or less when purchased to be cash equivalents. At December
31, 1993, SEPSCO had $20,646,000 invested in short-term commercial paper.
Marketable Securities
At December 31, 1993, marketable securities, which are stated at cost
which approximates fair market value, consisted of the following (in
thousands):
Marketable equity securities $ 1,005
Marketable debt securities 9,790
--------
$ 10,795
========
Inventories
Inventories are determined under the lower of cost (first-in, first-out
basis) or market.
Depreciation, Depletion and Amortization
Assets acquired prior to March 1, 1980 are depreciated on the straight-
line basis using composite annual rates on the majority of properties of
5.2% to 7.2% for refrigeration properties; and 5% for liquefied petroleum
gas properties. The development of these composite rates was based on the
estimated useful lives of the related asset groups. Under the composite
method of depreciation, upon normal retirement or replacement, the cost of
property, less any salvage proceeds, is charged to accumulated depreciation.
Gains and losses arising from abnormal retirements or disposal are included
in current operations.
Assets acquired on or after March 1, 1980 are depreciated on the
straight-line basis using the estimated useful lives of the related major
classes of properties; 3 to 9 years for automotive equipment; 5 to 20 years
for machinery and equipment; and 20 to 30 years for buildings and
improvements. Under this method, gains and losses arising from disposal are
included in current operations.
Depreciation and depletion on natural gas and oil properties are
computed using the units of production method based on proven reserves
estimated from engineering data.
Financing costs incurred in connection with the issuance of SEPSCO's 11
7/8% Senior Subordinated Debentures (the "Debentures") are being amortized
as interest expense over the term of the Debentures using the interest rate
method. At February 28, 1993 and December 31, 1993, $1,063,000 and
$846,000, respectively, of such unamortized deferred financing costs are
included in "Other assets" in the accompanying consolidated balance sheets.
The original issue debt discount on the Debentures is being amortized as
interest expense over the term of the Debentures using the interest rate
method. Such unamortized debt discount is reported as a reduction of
related long-term debt in the accompanying consolidated balance sheets.
Income Taxes
Federal income tax returns for SEPSCO and its consolidated subsidiaries
are filed on a consolidated basis.
SEPSCO adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" ("SFAS 109") effective March 1, 1993.
This accounting change resulted in a benefit of $7,617,000, $.64 per share,
which is reflected as the cumulative effect of changes in accounting
principles for "The Company" in the accompanying consolidated statement of
operations for Transition 1993.
SEPSCO recognizes deferred income taxes for the tax consequences of
temporary differences by applying the enacted statutory tax rates to the
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Postretirement Benefits Other than Pensions
Effective March 1, 1993, SEPSCO adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions"
("SFAS 106"). This new standard requires the expected cost of these
benefits be charged to expense during the years that employees render
service. The effect of the adoption of SFAS 106 was immaterial.
Oil and Gas
The successful efforts method of accounting is followed for costs
incurred in oil and gas exploration and development activities. Property
acquisition costs for oil and gas properties are initially capitalized.
When a property is determined to contain proven reserves, its property
acquisition costs are transferred to proven properties and amortized using
the units-of-production method. Exploration costs other than drilling,
including geological and geophysical costs are expensed as incurred.
Exploratory drilling costs are initially capitalized. If and when a
property is determined to be nonproductive, property acquisition and
exploratory drilling costs are expensed.
Income (Loss) Per Share
Income (loss) per share has been computed by dividing net income
(loss), after the reduction for an insignificant amount of preferred stock
dividends, by the 11,655,067 weighted average common shares outstanding
during Fiscal 1992, Fiscal 1993 and Transition 1993.
(2) Change in Fiscal Year
The following sets forth unaudited condensed financial information for
the ten months ended December 31, 1992, the comparable prior ten month
period to Transition 1993 (in thousands, except per share amounts):
<TABLE>
<S> <C>
Net sales $ 22,393
Operating profit 2,469
Income from continuing
operations before income taxes 7,542
Benefit from income taxes 307
Loss from discontinued operations (654)
Equity in cumulative effect of changes
in accounting principles of affiliate (5,954)
Net income 1,241
Income per share:
Continuing operations .67
Discontinued operations (.05)
Cumulative effect of changes in
accounting principles of affiliate (.51)
Net income .11
</TABLE>
(3) Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of all of its operating businesses, consisting of its utility
and municipal services, refrigeration and natural gas and oil businesses.
Accordingly, SEPSCO has retroactively restated the accompanying consolidated
financial statements for each of the periods shown to reflect all of such
businesses as discontinued operations through July 22, 1993. The operating
results of the discontinued operations subsequent to July 22, 1993 have been
deferred and considered in the loss on disposal of discontinued operations
and are included in "Net current liabilities of discontinued operations".
In addition, on July 22, 1993 SEPSCO's Board of Directors authorized the
sale or liquidation of the liquefied petroleum gas business. SEPSCO intends
to transfer the liquefied petroleum gas business to a subsidiary of Triarc
and the transfer would be accounted for at net book value. The precise
nature of such transfer has not been determined and is expected to occur by
July 22, 1994. Based on these facts SEPSCO has continued to reflect the
liquefied petroleum gas business as a continuing operation. On December 9,
1993 SEPSCO's Board of Directors decided to sell the natural gas and oil
business to Triarc following the Merger and the resulting elimination of the
minority interest in SEPSCO (see Note 15) rather than selling such business
to an independent third party. Such sale will be in the form of a sale of
the stock of the entities comprising the natural gas and oil business for a
net cash purchase price of $8,500,000, which Triarc and SEPSCO believe is
equal to their fair value and which is approximately $4,000,000 higher than
their net book value.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal
services business segment for $69,600,000 in cash plus the assumption by the
purchaser of $5,000,000 in current liabilities resulting in a loss of
$4,571,000. On October 7, 1993 SEPSCO sold the stock of its two
construction related operations previously included in its utility and
municipal services business segment for a nominal amount subject to
adjustments described below. As the related assets are sold or liquidated
the purchasers have agreed to pay, as deferred purchase price, 75% of the
net proceeds received therefrom (cash of $1,815,000 has been received as of
December 31, 1993) plus, in the case of the larger of the two entities, an
amount equal to 1.25 times the adjusted book value of such entity as of
October 5, 1995 (the "Book Value Adjustment"). As of October 7, 1993, the
adjusted book value of the assets of that entity aggregated approximately
$1,600,000. In addition, SEPSCO paid $2,000,000 in October and November
1993 to cover the buyer's short-term operating losses and working capital
requirements for the construction related operations. SEPSCO currently
expects to break-even on the sales of the construction related operations,
excluding any consideration of the potential Book Value Adjustment.
On April 8, 1994 SEPSCO sold substantially all of the operating assets
of the ice operations of its refrigeration business segment for $5,000,000
in cash, a $4,295,000 note (discounted value $3,327,000) and the assumption
by the buyer of certain current liabilities of up to $1,000,000. The note,
which bears no interest during the first year and 5% thereafter is payable
in installments of $120,000 in 1995 through 1998 with the balance of
$3,815,000 due 1999. The only remaining discontinued operations are the
cold storage operation of the refrigeration business and the natural gas and
oil business. The precise timetable for the sale and liquidation of the
cold storage operations will depend upon SEPSCO's ability to identify
appropriate potential purchasers and to negotiate acceptable terms for the
sale of such operation. SEPSCO currently anticipates completion of such
sales by July 22, 1994.
In connection with the dispositions referred to above, SEPSCO
reevaluated the estimated gain or loss from the sale of its discontinued
operations and provided $13,910,000 for the revised estimated loss on the
sale of the discontinued operations from an estimated break-even position as
of August 31, 1993. The revised estimate principally reflects (i)
approximately $4,600,000 of losses from the sales of the operations
comprising the utility and municipal services business segment previously
estimated to be approximately break-even, (ii) approximately $6,700,000 of
losses from the sale of operations comprising SEPSCO's refrigeration
business segment previously estimated to be a gain of $1,600,000, (iii)
approximately $2,500,000 of estimated losses from operations from July 22,
1993 to the actual or estimated disposal of the discontinued operations and
(iv) less previously estimated losses of $1,500,000 from the sale of
SEPSCO's natural gas and oil business segment which will now be sold to
Triarc and accounted for as a transfer between entities under common control
at net book value. The net loss from the sale of the utility and municipal
services business segment reflects a reduction of $1,800,000 in the
estimated sales price for the construction related operations from previous
estimates, a $2,000,000 reduction in anticipated proceeds from asset sales
by July 22, 1994 and other adjustments in finalizing the loss on the sale of
the tree maintenance services operations. The reduction in proceeds from
asset sales result from the buyer of such business successfully negotiating
extensions of certain major contracts with respect to the larger of such
businesses and as a result no longer intending to immediately dispose of the
major portion of the assets. Should the buyer hold such assets through
October 5, 1995, the $2,000,000 reduction in proceeds would be effectively
realized through the Book Value Adjustment. The $8,200,000 change relating
to the sales of the refrigeration business segment principally results from
(i) a $4,000,000 reduction in the sales price for the ice operations and
(ii) a $4,000,000 reduction in the estimated sales price of the cold storage
operations based on preliminary sales discussions and experience with
respect to negotiating the sale of the other operations.
SEPSCO expects that all remaining dispositions, including the results
of their operations through the actual or anticipated disposal dates, will
not in the aggregate result in any additional material loss to SEPSCO.
The loss from discontinued operations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Transition
1992 1993 1993
---- ---- -----
<S> <C> <C> <C>
Loss from operations of
discontinued operations,
net of income tax benefit
of $257, $2,420 and $3,830 $ (225) $ (5,542) $ (9,445)
Loss on disposal of
discontinued operations,
without income tax benefit -- -- (13,910)
------- --------- --------
$ (225) $ (5,542) $ (23,355)
======= ========= ========
</TABLE>
PAGE
<PAGE>
Net current assets (liabilities) and non-current assets of
discontinued operations consist of the following (for the purpose of the
following tables, Natural Gas and Oil will be referred to as "NG&O" and
Utility and Municipal Services and Refrigeration will be referred to as
"Services and Refrig."):
<TABLE>
<CAPTION>
February 28, 1993 December 31, 1993
----------------- -----------------
Services Services
NG&O and Refrig. NG&O and Refrig.
----- --------- ---- ---------
(In thousands)
<S> <C> <C> <C> <C>
Current assets:
Cash $ -- $ -- $ 253 $ 308
Receivables, less allowance
for doubtful accounts 365 26,313 197 1,528
Inventories 160 2,894 157 647
Other current assets 40 1,939 17 236
-------- -------- -------- --------
Total current assets 565 31,146 624 2,719
-------- -------- -------- --------
Current liabilities:
Current portion of long-term
debt -- 349 -- 6
Current portion of capital
leases due to leasing
affiliate 25 10,245 39 249
Accounts payable 287 8,693 528 1,951
Accrued salaries and wages 29 2,800 28 320
Other accrued expenses 879 6,417 1,035 1,987
-------- -------- -------- --------
Total current liabilities 1,220 28,504 1,630 4,513
-------- -------- -------- --------
Net current assets (liabilities)
of discontinued operations $ (655) $ 2,642 $(1,006) $ (1,794)
=============================== ========
Non-current assets:
Properties $ 18,893 $189,101 $17,787 $ 51,344
Less accumulated depreciation,
depletion and amortization 11,489 104,625 10,507 33,662
-------- -------- -------- --------
7,404 84,476 7,280 17,682
Other assets 29 1,083 1 71
-------- -------- -------- --------
Total non-current assets 7,433 85,559 7,281 17,753
-------- -------- -------- --------
Non-current liabilities
Long-term debt -- 172 -- 12
Capitalized leases due to leasing
affiliate 21 16,799 15 212
Deferred income taxes 1,303 5,162 1,305 (1,305)
Other liabilities 304 3,047 504 2,609
-------- -------- -------- --------
Total non-current liabilities 1,628 25,180 1,824 1,528
-------- -------- -------- --------
Net non-current assets of
discontinued operations $ 5,805 $ 60,379 $ 5,457 $ 16,225
======== ======== ======== ========
</TABLE>
PAGE
<PAGE>
<TABLE>
The income (loss) from discontinued operations for Fiscal 1992, Fiscal 1993 and Transition 1993 from March 1, 1993 up to the
July 22, 1993 measurement date as well as the loss from operations during the period of July 23, 1993 to December 31, 1993,
which has been deferred and was considered in the loss on disposal of discontinued operations, consisted of the following:
<CAPTION>
Transition 1993
-----------------------------------
March 1, 1993 to July 23, 1993 to
Fiscal 1992 Fiscal 1993 July 22, 1993 December 31, 1993
--------------- ------------- -------------- ---------------
Services Services Services Services
and and and and
NG&O Refrig. NG&O Refrig. NG&O Refrig. NG&O Refrig.
---- ------ ---- ----- ---- ------ ---- ------
(In thousands)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Net sales $ 5,488 $ 10,735 $ 5,488 $ 11,177 $ 2,111 $ 5,943 $ 2,114 $ 3,619
Service revenues -- 184,130 -- 188,049 -- 75,502 -- 43,600
------- ------- ------- ------- ------- ------- ------- -------
5,488 194,865 5,488 199,226 2,111 81,445 2,114 47,219
Operating costs and expenses:
Cost of sales 2,997 11,095 3,934 10,805 1,194 5,207 1,357 3,934
Cost of services -- 168,639 -- 176,895 -- 70,922 -- 40,810
Selling, general and administrative
expenses 2,139 12,784 2,070 13,011 1,451 4,439 895 6,189
Write-down of certain unprofitable
properties -- -- -- -- -- 8,000 -- --
Facilities relocation and corporate
restructuring (Note 14) -- -- -- -- 161 3,772 -- --
------- ------- ------- ------- ------- ------- ------- -------
5,136 192,518 6,004 200,711 2,806 92,340 2,252 50,933
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) 352 2,347 (516) (1,485) (695) (10,895) (138) (3,714)
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest expense (14) (4,416) (9) (3,738) (3) (1,288) (11) (599)
Other, net (148) 1,397 26 (2,240) 108 (502) (47) 382
------- ------- ------- ------- ------- ------- ------- -------
(162) (3,019) 17 (5,978) 105 (1,790) (58) (217)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes 190 (672) (499) (7,463) (590) (12,685) (196) (3,931)
Benefit from (provision for)
income taxes (126) 383 172 2,248 258 3,572 (139) 422
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from discontinued
operations $ 64 $ (289) $ (327) $ (5,215) $ (332) $(9,113) $ (335) $(3,509)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
PAGE
<PAGE>
(4) Restricted Cash
SEPSCO has an arrangement with a bank providing for the issuance of
letters of credit for the purposes of securing certain performance and other
bonds associated with the discontinued operations. These letters of credit
are collateralized by cash deposited in restricted interest-bearing accounts
not associated with the discontinued operations.
(5) Change in Control
As previously reported, a change in control of SEPSCO's parent, Triarc,
occurred on April 23, 1993, which as a result of Triarc's ownership of
SEPSCO's voting securities constituted a change in control of SEPSCO (the
"Change in Control"). In connection with the Change in Control, the Board of
Directors of SEPSCO was reconstituted and new senior executive officers were
elected.
In connection therewith, SEPSCO received from Triarc $27,115,000 in
cash and $3,535,000 in the form of an offset of amounts due to Triarc as of
April 23, 1993 in connection with the providing by Triarc of certain
management services to SEPSCO. The aggregate $30,650,000 of payments by
Triarc included full payment of $6,806,000 (including $306,000 of accrued
interest) on an unsecured promissory note (the "Promissory Note") issued to
SEPSCO by Triarc in connection with the 1988 sale of an investment and
partial payment of $23,844,000 (including $1,430,000 of accrued interest) on
a $48,952,000 promissory note (the "Note") due to SEPSCO. The remaining
$26,538,000 principal balance of the Note is due on August 1, 1998. SEPSCO
estimates that the carrying value of the Note at February 28, 1993 and
December 31, 1993 approximates fair value based upon estimated market prices
for a security with a comparable maturity, interest rate and security of
principal. The Note resulted from the 1986 sale of approximately 51% of the
outstanding common shares of Graniteville to Triarc and is secured by such
shares. The Note is subordinated to senior indebtedness of Triarc to the
extent, if any, that the payment of principal and interest thereon is not
satisfied out of proceeds of the pledged Graniteville shares. SEPSCO used
the $27,115,000 of cash proceeds to pay $12,689,000 due under its accounts
receivable financing arrangement, which bore interest at the prime rate plus
1%, which was then terminated and to pay $14,426,000 (including $383,000 of
accrued interest) owed to Chesapeake Insurance Company Limited ("Chesapeake
Insurance"), a subsidiary of CFC Holdings.
In connection with the collection of the Promissory Note, in Fiscal
1993 SEPSCO recognized a $6,000,000 gain on the sale of the common stock of
an unaffiliated company to Triarc which had been previously deferred until
collection of the Promissory Note was assured. As such note was collected in
April 1993 prior to the issuance of the Fiscal 1993 consolidated financial
statements, the $6,000,000 gain was recognized in Fiscal 1993.
(6) Properties
The following is a summary of properties, at cost:
<TABLE>
<CAPTION>
February December
28, 1993 31, 1993
-------- --------
(In thousands)
<S> <C> <C>
Land $ 1,722 $ 1,707
Buildings and improvements 1,244 1,241
Machinery and equipment 13,601 13,684
Automotive equipment 3,964 3,951
------- -------
20,531 20,583
Less accumulated depreciation 12,706 13,355
------- -------
$ 7,825 $ 7,228
======= =======
</TABLE>
(7) Investment in Affiliates
SEPSCO had a $1,500,000 investment in the preferred stock of Chesapeake
Insurance and Graniteville had a $2,500,000 investment in such preferred
stock. During its quarter ended September 30, 1993 Chesapeake Insurance
increased its reserve for insurance and reinsurance losses by $10,000,000 and
as a result reduced the stockholders' equity of Chesapeake Insurance to a
minimal amount. Chesapeake Insurance ceased writing insurance or reinsurance
of any kind for periods commencing on or after October 1, 1993. As a result
Chesapeake Insurance will not have any future operating cash flows and its
remaining liabilities, including payment of claims on insurance previously
written, will be liquidated with assets on hand. Accordingly, the preferred
stock investment is not recoverable and SEPSCO and Graniteville wrote off
their investment in such stock since the decline in value was deemed to be
other than temporary. This reduced equity in earnings of affiliates in
Transition 1993 by $1,225,000 and $540,000 relating to Graniteville and CFC
Holdings, respectively.
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
February December
28, 1993 31, 1993
-------- --------
(In thousands)
<S> <C> <C>
Graniteville $ 62,530 $ 67,824
CFC Holdings 1,297 387
Chesapeake Insurance 1,500 --
-------- --------
$ 65,327 $ 68,211
======== ========
</TABLE>
Equity in earnings of affiliates before income taxes on the ultimate
distribution of earnings of affiliates of SEPSCO, cumulative effect of
changes in accounting principles and extraordinary items consisted of the
following:
<TABLE>
<CAPTION>
Fiscal Fiscal Transition
1992 1993 1993
------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Graniteville $ 6,009 $ 12,426 $ 5,294
CFC Holdings (808) (265) (805)
------- ------- -------
$ 5,201 $ 12,161 $ 4,489
======= ======= =======
</TABLE>
Graniteville
Summary consolidated balance sheet information at February 28, 1993 and
December 31, 1993 and summary consolidated income statement information for
Fiscal 1992, Fiscal 1993 and Transition 1993 for Graniteville are as follows:
<TABLE>
<CAPTION>
February December
28, 1993 31, 1993
-------- --------
(In thousands)
<S> <C> <C>
Summary Consolidated
Balance Sheet Information
Current assets $154,258 $177,109
Properties, net 105,472 117,950
Note receivable from Triarc -- 70,446
Other assets 3,634 6,130
-------- --------
$263,364 $371,635
======== ========
Current liabilities $ 59,856 $ 58,630
Long-term debt 52,896 150,949
Deferred income taxes 21,374 21,934
Other liabilities 1,626 1,706
Stockholders' equity 127,612 138,416
-------- --------
$263,364 $371,635
======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Fiscal Transition
1992 1993 1993
------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Summary Consolidated Income
Statement Information
Operating revenues $ 456,402 $ 499,060 $ 448,867
Operating profit 28,786 49,734 30,215
Income before cumulative
effect of changes in
accounting principles 12,263 25,360 10,804
Net income 12,263 12,324 10,804
</TABLE>
In Fiscal 1993 Graniteville adopted SFAS 109 and SFAS 106 with the
cumulative effect of changes in accounting principles resulting in charges to
Graniteville's consolidated statement of earnings amounting to $12,314,000
for SFAS 109 and $722,000, net of Graniteville's taxes of $429,000 for SFAS
106. SEPSCO's equity, net of taxes of $434,000, in such cumulative effect,
amounted to a charge of $5,954,000 or $.51 per share.
Under its new credit facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO, in
an amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan
is less than $50,000,000 at the time of the payment (the outstanding
principal balance was $72,500,000 as of December 31, 1993) and certain other
conditions are met. Accordingly, Graniteville is unable to pay any dividends
to or make any loans or advances to SEPSCO prior to December 31, 1995. Cash
dividends received by SEPSCO from its investments in Graniteville under its
previous credit facility were $1,038,000 and $3,004,000, in the years ended
February 29, 1992 and February 28, 1993, respectively.
CFC Holdings
SEPSCO presently owns 5.4% of the outstanding common stock of CFC
Holdings. The remaining 94.6% of such common stock is currently owned by
Triarc. CFC Holdings owns 100% of RC/Arby's Corporation ("RCAC", formerly
Royal Crown Corporation, the principal subsidiaries of which are Arby's, Inc.
("Arby's") and Royal Crown Company, Inc. ("Royal Crown", formerly Royal Crown
Cola Co.) and Chesapeake Insurance). SEPSCO received its 5.4% in CFC
Holdings in July 1991 in exchange for its then 5.4% interest in the common
stock of RCAC which at that time owned 100% of Arby's, Royal Crown and
Chesapeake Insurance. In connection with a capital restructuring in July
1991, all of the RCAC preferred stock which was owned by Triarc was converted
into common stock of RCAC reducing SEPSCO's ownership percentage from its
then 48% to 5.4%. The reduction in SEPSCO's ownership in connection with
such restructuring resulted in SEPSCO reclassifying as of August 31, 1991, to
"Additional paid-in capital", the cumulative equity in net losses of CFC
Holdings amounting to $15,210,000 which was previously recorded in "Other
liabilities".
SEPSCO's equity in extraordinary items relates to CFC Holdings and
consisted of a charge in Fiscal 1993 of $348,000 due to the early
extinguishment of debt.
(8) Income Taxes
The benefit from (provision for) income taxes consisted of the following
components:
<TABLE>
<CAPTION>
Fiscal Fiscal Transition
1992 1993 1993
------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ (849) $ (183) $ --
State (312) (227) --
-------- -------- --------
(1,161) (410) --
-------- -------- --------
Deferred:
Federal (326) (1,291) 1,195
State 51 30 --
-------- -------- --------
(275) (1,261) 1,195
-------- -------- --------
$ (1,436) $ (1,671) $ 1,195
======== ======== ========
</TABLE>
The difference between the reported tax benefit (provision) and a
computed tax benefit (provision) at the Federal statutory rate (34% for
Fiscal 1992, 34.2% for Fiscal 1993 and 35% for Transition 1993) is reconciled
as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Transition
1992 1993 1993
------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Income taxes computed at Federal
statutory tax rate $ (2,641) $ (4,871) $ (292)
Decrease (increase) in Federal
taxes from:
Equity in earnings of
affiliates 1,415 3,308 1,571
State taxes, net of Federal
income tax benefit (172) (130) --
Non-deductible consulting
agreement -- -- (80)
Other, net (38) 22 (4)
-------- -------- --------
$ (1,436) $ (1,671) $ 1,195
======== ======== ========
</TABLE>
The current deferred tax assets and the non-current deferred tax assets
(liabilities) consisted of the following components:
<TABLE>
<CAPTION>
March 1, December
1993 31, 1993
-------- --------
(In thousands)
<S> <C> <C>
Current deferred tax assets:
Alternative minimum tax,
net operating loss and
depletion carryforwards $ 7,628 $ --
Litigation settlement reserve 495 332
Reserve for losses on contracts 608 1,841
Accrued employee benefit costs 524 790
Allowance for doubtful accounts 455 182
Other 146 303
-------- --------
9,856 3,448
Less valuation allowance -- (3,448)
-------- --------
$ 9,856 $ --
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 1, December
1993 31, 1993
-------- --------
(In thousands)
<S> <C> <C>
Non-current deferred tax assets
(liabilities):
Accelerated depreciation $(18,638) $ (8,014)
Reserve for income tax contingencies (951) (973)
Original issue discount 1,561 1,553
Non-deductible insurance loss
reserves paid to affiliate 1,437 1,469
Reserve for environmental costs 1,115 930
Alternative minimum tax, net
operating loss and depletion
carryforwards -- 7,303
Other 313 47
-------- --------
(15,163) 2,315
Less valuation allowance -- (2,315)
-------- --------
$(15,163) $ --
======== ========
</TABLE>
The net change in the current deferred tax asset and non-current
deferred tax liability from March 1, 1993 to December 31, 1993 of $5,307,000
is comprised of a deferred tax benefit from continuing operations of
$1,195,000 and a deferred tax benefit from discontinued operations of
$4,112,000.
As of December 31, 1993 SEPSCO had net operating loss carryforwards for
federal income tax reporting purposes of approximately $6,400,000. Such
carryforwards will expire in the amount of approximately $2,200,000 in the
year 2004 and approximately $4,200,000 in the year 2006. In addition SEPSCO
has depletion carryforwards of $5,000,000 and alternative minimum tax credit
carryforwards of approximately, $3,400,000 both of which have an unlimited
carryforward period.
Deferred income tax (provision) benefit results from timing differences
in the recognition of income and expenses for tax and financial reporting
purposes. The tax effect of the principal timing differences are as follows
(such disclosure is not presented for Transition 1993 as it is not required
under SFAS 109):
<TABLE>
<CAPTION>
Fiscal Fiscal
1992 1993
------- ---------
(In thousands)
<S> <C> <C>
Gain on sale of marketable
security $ -- $ (2,040)
Book over tax gain on
repurchase of Debentures (764) --
Original issue discount 72 (9)
Settlement of litigation -- 442
Book over tax depreciation 318 339
Other 99 7
-------- --------
$ (275) $ (1,261)
======== ========
</TABLE>
Federal income tax returns of SEPSCO have been examined by the Internal
Revenue Service ("IRS") for the tax years 1985 through 1988. Such audit has
been substantially resolved at no material cost to SEPSCO. The IRS has
recently commenced the examination of SEPSCO's Federal income tax returns for
the tax years from 1989 through 1992. The amount and timing of any payments
required as a result of the 1989 through 1992 audit cannot presently be
determined. However, SEPSCO believes that it has adequate aggregate reserves
for any tax liabilities, including interest, that may result from all such
examinations.
(9) Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
February December
28, 1993 31, 1993
-------- --------
<S> <C> <C>
11 7/8% Senior Subordinated Debentures due
February 1, 1998 (less unamortized
deferred debt discount of $5,282 and
$4,203) $ 57,718 $ 58,797
10% - 13% mortgage and equipment notes due
1994 to 2003 546 506
Other 5 --
-------- --------
58,269 59,303
Less current portion of long-term debt 9,046 9,045
-------- --------
$ 49,223 $ 50,258
======== ========
</TABLE>
Aggregate annual maturities, including required sinking fund payments,
of long-term debt are as follows as of December 31, 1993 (in thousands):
<TABLE>
Year ended December 31,
<S> <C>
1994 $ 9,045
1995 9,049
1996 9,053
1997 9,058
1998 27,063
Thereafter 238
--------
63,506
Less unamortized deferred debt
discount at December 31, 1993 4,203
--------
$ 59,303
========
</TABLE>
SEPSCO is required to retire annually, through a mandatory sinking fund,
$9,000,000 principal amount of the Debentures through 1997 with a final
payment of $27,000,000 due in 1998. On February 1, 1993 SEPSCO satisfied its
mandatory sinking fund requirement due on such date by payment of $8,734,000
in cash and $266,000 of principal amount of the Debentures. The amortization
of the discount on the Debentures purchased is reported as a separate line
item in the accompanying consolidated statements of operations.
Under provisions of the indenture (the "Indenture") pursuant to which
the Debentures were issued, SEPSCO is not permitted to pay cash dividends and
acquire shares of SEPSCO's capital stock as of December 31, 1993.
The fair value of the Debentures was approximately $4,700,000 and
$5,500,000 higher than the carrying values at February 28, 1993 and December
31, 1993, respectively, based on quoted market prices.
The indenture contains a provision which limits to $100,000,000 the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. At December 31, 1993 such indebtedness
was $59,321,000 resulting in allowable indebtedness of $40,679,000.
(10) Stockholders' Equity
At December 31, 1993 71.1% of SEPSCO's outstanding common stock, $1.00
par value per share, (the "SEPSCO Common Stock") and all of the convertible
preferred stock, Series B, was owned by Triarc. On April 14, 1994, Triarc
increased its ownership of SEPSCO's Common Stock to 100% (see Note 15). The
convertible preferred stock bears a dividend of 5 1/2% and is convertible
into 8,167 shares of common stock at a rate of $3.00 per share.
Included in "Retained earnings (deficit)" at February 28, 1993 and
December 31, 1993 are $3,309,000 and $7,696,000 of net undistributed earnings
of unconsolidated affiliates, respectively.
(11) Lease Commitments
SEPSCO leases certain machinery, automotive and other equipment
primarily from an indirect, wholly-owned subsidiary of Triarc under long-term
lease obligations which are accounted for as capital leases in the
accompanying consolidated balance sheets. The cost of properties under
capital leases amounted to $1,264,000 and $1,029,000 at February 28, 1993 and
December 31, 1993, respectively, and the cost of properties under capital
leases of discontinued operations (included in "Net non-current assets of
discontinued operations") amounted to $54,698,000 and $1,246,000,
respectively. The decrease in the cost of properties under capital leases of
discontinued operations is the result of the sale of certain businesses (see
Note 3).
The future minimum lease payments (net of sublease rentals which are not
significant) under capital leases and operating leases with an initial
noncancelable term in excess of one year are as follows as of December 31,
1993:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
---------------------------- ----------------------------
Continuing Discontinued Continuing Discontinued
Operations Operations Total Operations Operations Total
---------- ---------- ----- ---------- ----------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
1994 $ 285 $ 325 $ 610 $ 496 $ 33 $ 529
1995 195 165 360 246 -- 246
1996 106 74 180 93 -- 93
1997 44 10 54 14 -- 14
1998 -- -- -- 9 -- 9
Thereafter -- -- -- 9 -- 9
------ ------ ------ ------ ------ ------
Total
minimum
lease
payments 630 574 1,204 $ 867 $ 33 $ 900
====== ====== ======
Less amounts
representing
interest 77 59 136
------ ------ ------
Present value
of minimum
lease
payments $ 553 $ 515 $1,068
====== ====== =======
</TABLE>
Rental expense under operating leases, which is primarily for the
rental of office space, was $2,330,000 in Fiscal 1992, $2,012,000 in Fiscal
1993 and $1,470,000 in Transition 1993, of which $537,000, $485,000 and
$370,000 related to continuing operations and $1,793,000, $1,527,000 and
$1,100,000 related to discontinued operations.
(12) Retirement and Incentive Compensation Plans
Substantially all of the employees of the continuing and discontinued
businesses are covered under SEPSCO's 401(k) defined contribution plan or one
of the multi-employer union plans to which SEPSCO contributes.
The defined contribution plan allows eligible employees to contribute
up to 15% of their total earnings, subject to certain limitations. SEPSCO
makes a matching contribution for eligible employees of 25% of the employee's
contributions but limited to the first 5% of an employee's compensation and
an additional contribution equal to 1/4 of 1% of such employee's total
earnings. Total contributions were $368,000 in Fiscal 1992, and $394,000 in
Fiscal 1993 and $133,000 in Transition 1993.
SEPSCO had several defined benefit pension plans, all of which were
frozen prior to February 28, 1990. SEPSCO's applications with the Pension
Benefit Guaranty Corporation and the Internal Revenue Service for the
termination and distribution of surplus pension assets of SEPSCO's defined
benefit pension plans were approved during Fiscal 1992. After the purchase
of annuities for plan participants, SEPSCO received the net surplus pension
assets of $3,226,000 in Fiscal 1992 and $206,000 in Fiscal 1993.
Substantially all of the gain on such reversions had previously been
reflected through February 28, 1992 in accordance with SFAS 87, including
$863,000 in Fiscal 1992. During Fiscal 1993 all remaining prepaid and
accrued pension costs existing as of February 28, 1992 were eliminated
resulting in a termination gain of $431,000.
The components of the Fiscal 1992 net periodic pension benefits are as
follows (in thousands):
<TABLE>
<S> <C>
Service cost $ --
Interest cost on projected benefit
obligation 604
Return on plan assets (1,241)
Amortization, net of deferral (226)
--------
Net periodic pension benefits $ (863)
========
</TABLE>
An assumed discount rate of 7.0% in Fiscal 1992 and an expected long-
term rate on assets of 9%, were used in developing this data. Plan assets
were invested in a managed portfolio consisting primarily of money market
investments, corporate bonds and common stock of unaffiliated issuers.
Under certain union contracts, SEPSCO is required to make payments to
the union pension funds based upon hours worked by the eligible employees.
Payments to the funds amounted to $819,000 in Fiscal 1992, $784,000 in Fiscal
1993 and $536,000 in Transition 1993. Information from the plan
administrators of the funds is not available to permit SEPSCO to determine
its share of unfunded vested benefits, if any.
During Transition 1993 Triarc granted stock options to certain key
employees of SEPSCO under Triarc's Amended and Restated 1993 Equity
Participation Plan. Of such options 10,000 were granted at an option price
of $20.00 that was lower than the fair market value of Triarc's Class A
Common Stock at the date of grant of $31.75. The aggregate difference of
$118,000 between the option price and the fair market value at the date of
grant is being amortized to compensation expense over the applicable vesting
period through 1998. Compensation expense resulting from the grants was
$8,000 during Transition 1993 and is included in "Selling, general and
administrative expenses" in the accompanying consolidated statement of
operations.
(13) Transactions with Affiliates
In Fiscal 1993, SEPSCO increased its borrowings from Chesapeake
Insurance by $8,400,000 to $14,043,000. The additional borrowings were used
to provide the necessary funds to meet SEPSCO's mandatory sinking fund
requirements due February 1, 1993. The loans from Chesapeake Insurance were
payable on demand and bore interest at an annual rate of 11 7/8%. In
addition such loans were secured by a pledge of approximately 100% of the
stock of SEPSCO's Public Gas subsidiary. On April 23 1993 SEPSCO paid in
full such loans amounting to $14,426,000 including $383,000 of accrued
interest to Chesapeake Insurance (see Note 5).
In Fiscal 1992 SEPSCO purchased 15,000 convertible redeemable preferred
shares of Chesapeake Insurance for $1,500,000 (see Note 7).
Prior to the Change in Control, SEPSCO received from Triarc certain
management services including legal, accounting, tax, insurance, financial
and other management services. The portion of these costs allocated to
SEPSCO under a management services agreement (the "Former Management Services
Agreement") was $2,063,000 in Fiscal 1992, $2,033,000 in Fiscal 1993 and
$557,000 in Transition 1993 (of which $268,000, $264,000 and $92,000,
respectively, was allocated to continuing operations and $1,795,000,
$1,769,000 and $465,000, respectively, was allocated to discontinued
operations). Such costs were allocated to SEPSCO by Triarc based first
directly on the cost of the service provided and then, for those costs which
could not be directly allocated, based upon the relative revenues and
tangible assets of the affiliated companies. Management of SEPSCO believes
the cost of such services would have been higher if SEPSCO had operated as an
entity unaffiliated with Triarc. Effective April 23, 1993, SEPSCO entered
into a new management services agreement (the "New Management Services
Agreement") with Triarc which revised the allocation method of these costs
which can not be directly allocated. As revised, such costs are allocated
based upon the relative sum of the greater of earnings before income taxes,
depreciation and amortization and 10% of revenues. The portion of these
costs allocated to SEPSCO under the New Management Services Agreement was
$2,699,000 in Transition 1993 (of which $447,000 was allocated to continuing
operations and $2,252,000 was allocated to discontinued operations).
Management of SEPSCO believes that such allocation method approximates the
costs that would have been incurred if SEPSCO had operated as an entity
unaffiliated with Triarc. Additionally, SEPSCO was allocated certain
uncollectible amounts owed to Triarc for similar management services to
certain former affiliates of SEPSCO amounting to $849,000 in Fiscal 1992,
$1,781,000 in Fiscal 1993 and $150,000 in Transition 1993 (of which $110,000,
$232,000 and $25,000, respectively, was allocated to continuing operations
and $739,000, $1,549,000 and $125,000, respectively, was allocated to
discontinued operations). These amounts were allocated principally on the
same basis as the costs of the management services, an allocation method the
management of SEPSCO believes is reasonable. Such costs to SEPSCO would have
been lower if SEPSCO had operated as an unaffiliated entity of Triarc to the
extent the cost of such services would not have been incurred had services
not been provided to the entities unable to pay. Such amounts are included
in "Selling, general and administrative expenses" and "Loss from discontinued
operations, net of income taxes" in the accompanying consolidated statements
of operations.
Until January 31, 1994 SEPSCO, through Triarc, leased office space from
a trust for the benefit of Victor Posner and his children (the "Posner
Lease"). Rent allocated by Triarc to SEPSCO amounted to $1,467,000 in Fiscal
1992, $1,055,000 in Fiscal 1993 and $163,000 (which is net of a credit
relating to prior years resulting from the decrease in rent noted below) in
Transition 1993 (of which $191,000, $137,000 and $27,000, respectively, was
allocated to continuing operations and $1,276,000, $918,000 and $136,000,
respectively, was allocated to discontinued operations). The Posner Lease,
which would have expired in 1993, was renewed by Triarc and in accordance
therewith in January 1993 rental expense was reduced by approximately 50%.
Such amounts are included in "Selling, general and administrative expenses"
and "Income (loss) from discontinued operations, net of income taxes" in the
accompanying consolidated statements of operations. During Transition 1993,
SEPSCO also recorded a provision of $2,840,000 (of which $471,000 was
allocated to continuing operations and $2,369,000 was allocated to
discontinued operations) for its share of the remaining payments on the
Posner Lease due to its cancellation effective January 31, 1994. Such
amounts are included in "Selling, general and administrative expenses" and
"Income (loss) from discontinued operations, net of income taxes" in the
accompanying consolidated statements of operations. During Fiscal 1992,
Fiscal 1993 and Transition 1993 until April 23, 1993, the rent was allocated
based on direct square footage utilized and the relative net revenues and
tangible assets of SEPSCO. Effective with the Change in Control the rent
allocation method was changed and is now based solely on direct square
footage utilized and the relative net revenues of SEPSCO, a method management
of SEPSCO believes is reasonable. Had SEPSCO not occupied space under
Triarc's long-term lease obligation or been allocated rent for indirect
usage, given the competitive rental market during the relevant periods,
management of SEPSCO believes that its rent costs on a stand alone basis
would have been substantially lower through December 31, 1992.
In addition, SEPSCO incurred interest expense at 18% on unpaid balances
due to Triarc for management services and rent under the Former Management
Services Agreement of $737,000 in Fiscal 1992, $652,000 in Fiscal 1993 and
$(68,000) (which is net of a credit relating to prior years) in Transition
1993 (of which $96,000, $85,000 and $(11,000), respectively, was allocated to
continuing operations and $641,000, $567,000 and $(57,000), respectively, was
allocated to discontinued operations).
Chesapeake Insurance provided certain insurance and reinsurance of
certain risks to SEPSCO until October 1993 at which time Chesapeake Insurance
ceased writing all insurance and reinsurance. The net premium expense
incurred was $9,416,000 in Fiscal 1992, $10,688,000 in Fiscal 1993 and
$9,791,000 in Transition 1993 (of which $997,000, $1,064,000 and $969,000
respectively, was allocated to continuing operations and $8,419,000,
$9,624,000 and $8,822,000, respectively, was allocated to discontinued
operations). In addition, Insurance and Risk Management, Inc., an affiliated
company until April 23, 1993, acted as agent or broker in connection with
insurance coverage obtained by SEPSCO and also provided claims processing
services. The commissions and payments incurred for such services were
$528,000 in Fiscal 1992, $488,000 in Fiscal 1993 and $50,000 in Transition
1993 (of which $56,000, $49,000 and $8,000, respectively, was allocated to
continuing operations and $472,000, $439,000 and $42,000, respectively, was
allocated to discontinued operations).
SEPSCO's machinery and automotive equipment under capital lease for the
continuing and discontinued operations are leased from an indirect, wholly-
owned subsidiary of Triarc. Interest charges on these lease obligations
amounted to $3,629,000 in Fiscal 1992, $3,156,000 in Fiscal 1993 and
$1,885,000 in Transition 1993 (of which $76,000, $72,000 and $56,000,
respectively, was allocated to continuing operations and $3,553,000,
$3,084,000 and $1,829,000, respectively, was allocated to discontinued
operations).
(14) Significant Transition 1993 Charges
The accompanying condensed consolidated statements of operations
include the following significant charges recorded in Transition 1993 (in
thousands):
<TABLE>
<S> <C>
Estimated cost allocated to SEPSCO by Triarc
to terminate the lease on Triarc's existing
corporate facilities $ 2,840
Costs allocated to SEPSCO by Triarc related
to a five-year consulting agreement extending
through April 1998 between Triarc and the
former Vice Chairman of Triarc 1,374
Estimated cost to relocate SEPSCO's corporate
office 500
------
Total facilities relocation and corporate
restructuring charges (a) 4,714 (1)
Estimated cost allocated to SEPSCO by Triarc for
compensation paid to the Special Committee of
the Board of Directors of Triarc (b) 625 (2)
Write-down of certain unprofitable properties (c) 8,000 (4)
Income tax benefit relating to the above charges (4,523) (3)
Write-off of investment in Chesapeake Insurance
(see Note 7) 1,500
Loss on disposal of discontinued operations,
without income tax benefit (see Note 3) 13,910 (4)
Provision for income tax contingencies and other
income tax matters 600 (5)
Equity in significant charges of affiliates, net
of taxes (d) 4,025
Cumulative effect of changes in accounting
principles (see Note 7) (7,515)
-------
$21,336
=======
</TABLE>
(1) $782,000 included in "Selling, general and administrative expenses"
of continuing operations and $3,932,000 included in "Loss from
discontinued operations."
(2) $104,000 included in "Selling, general and administrative expenses"
of continuing operations and $521,000 included in "Loss from
discontinued operations."
(3) $(301,000) included in "Benefit from income taxes" of continuing
operations and $(4,222,000) included in "Loss from discontinued
operations."
(4) Included in "Loss from discontinued operations."
(5) $100,000 included in "Benefit from income taxes" of continuing
operations and $500,000 included in "Loss from discontinued
operations."
(a) During Transition 1993 results of operations were significantly
impacted by facilities relocation and corporate restructuring
charges aggregating $4,714,000 consisting of $4,214,000 of charges
allocated to SEPSCO by Triarc: (i) estimated allocated cost of
$2,840,000 to terminate the lease on Triarc's existing corporate
facilities; (ii) total allocated costs of $1,374,000 relating to a
five-year consulting agreement (the "Consulting Agreement")
extending through April 1998 between Triarc and Steven Posner, the
former Vice Chairman of Triarc and $500,000 of estimated direct
costs to be incurred by SEPSCO to relocate SEPSCO's corporate
office. All of such charges are related to the Change in Control
described in Note 5. In connection with the Change in Control,
Victor Posner and Steven Posner resigned as officers and directors
of Triarc. In order to induce Steven Posner to resign, Triarc
entered into the Consulting Agreement with him. The allocated cost
related to the Consulting Agreement was recorded as a charge in
Transition 1993 because the Consulting Agreement does not require
any substantial services and SEPSCO and Triarc do not expect to
receive any services that will have substantial value to them. As
a part the Change in Control, the Triarc Board of Directors was
reconstituted. The first meeting of the reconstituted Triarc Board
of Directors was held on April 24, 1993. At that meeting, based on
a report and recommendations from a management consulting firm that
had conducted an extensive review of Triarc and its subsidiaries
operations and management structure, the Triarc Board of Directors
approved a plan of decentralization and restructuring which
entailed, among other things, the following features: (i) the
strategic decision to manage Triarc in the future on a
decentralized rather than on a centralized basis; (ii) the hiring
of new executive officers for Triarc; (iii) the termination of a
significant number of employees as a result of both the new
management philosophy and the hiring of an almost entirely new
management team and (iv) the relocation of Triarc and certain
subsidiaries, including SEPSCO's corporate headquarters. SEPSCO's
allocated cost to terminate the lease on Triarc's existing
corporate facilities ($2,840,000) and the cost to relocate SEPSCO's
headquarters ($500,000) all stemmed from the decentralization and
restructuring plan formally adopted at the April 24, 1993 meeting
of the reconstituted Triarc Board of Directors and accordingly,
were recorded in Transition 1993.
(b) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed
directors, were appointed in 1991 to serve on a special committee
(the "Special Committee") of Triarc's Board of Directors. Such
committee was empowered to review and pass on transactions between
Triarc and Victor Posner, the then largest shareholder of Triarc,
and his affiliates. SEPSCO has been charged $625,000 as an
allocation of the cash portion of a success fee payable to the
Special Committee attributable to the closing of the Triarc
reorganization and the resulting Change in Control.
(c) Represents write-downs in the carrying value of certain
unprofitable properties reflecting their estimated impairment as a
result of management's re-valuation of such assets.
(d) SEPSCO's equity in significant charges recorded in Transition 1993,
which consisted of both direct charges and charges allocated by
Triarc to Graniteville and CFC Holdings is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
CFC
Graniteville Holdings Total
------------ -------- -----
<S> <C> <C> <C>
Estimated cost allocated to the
affiliates by Triarc to terminate
the lease on Triarc's existing
corporate headquarters (a) $ 790 $ 382 $1,172
Total cost allocated to the
affiliates related to the
Consulting Agreement (a) 112 79 191
Estimated cost allocated to
the affiliates for compensation
paid to the Special Committee (b) 813 97 910
Affiliate's facilities relocation
and corporate restructuring -- 544 544
Write-off of investment in Chesapeake
Insurance 1,225 -- 1,225
Insurance loss reserves -- 540 540
Other -- 419 419
Less income tax benefit on the above items (577) (399) (976)
------ ------ ------
$2,363 $1,662 $4,025
====== ====== ======
</TABLE>
(15) Legal Matters
In December 1990, a purported shareholder derivative suit (the "Ehrman
Litigation") was brought against SEPSCO's directors at that time and certain
corporations, including Triarc, in the United States District Court for the
Southern District of Florida(the "District Court"). On October 18, 1993,
Triarc entered into a settlement agreement (the "Settlement Agreement") with
the plaintiff (the "Plaintiff") in the Ehrman Litigation. The Settlement
Agreement provides, among other things, that SEPSCO would be merged into, or
otherwise acquired by, Triarc or an affiliate thereof, in a transaction in
which each holder of SEPSCO's common stock other than Triarc will receive in
exchange for each share of SEPSCO's common stock, 0.8 shares of Triarc's
common stock. On November 22, 1993 Triarc and SEPSCO entered into a merger
agreement which provided for a subsidiary of Triarc to be merged into SEPSCO
in the manner described in the Settlement Agreement(the "Merger"). On
January 11, 1994 the District Court approved the Settlement Agreement, and
the Merger was approved on April 14, 1994 by SEPSCO's stockholders other than
Triarc. As a result of the Merger, Triarc owns 100% of SEPSCO's Common
Stock.
The Settlement Agreement also provides that Plaintiff's counsel and
financial advisor will be paid by Triarc, subject to court approval, cash not
to exceed $1,250,000 and $50,000, respectively and that Triarc would be
responsible for other expenses relating to the issuance of Triarc common
shares pursuant to the Merger. SEPSCO had previously accrued such $1,300,000
in the fourth quarter of Fiscal 1993 and accrued additional expenses related
to the settlement of the Ehrman Litigation of $400,000 and $1,200,000 in the
first and second quarters of Transition 1993, respectively, since SEPSCO
originally anticipated it would be responsible for such fees and expenses.
However, as previously indicated, the Settlement Agreement established that
Triarc and not SEPSCO was responsible for certain of these expenditures and,
accordingly, SEPSCO reversed $1,900,000 of previously accrued expenses in the
third quarter of Transition 1993 which is included in "Other, net" in the
consolidated statement of operations.
The Merger will be accounted for by Triarc in accordance with the
purchase method of accounting. Accordingly, Triarc's additional 28.87%
interest in SEPSCO's assets and liabilities will be recorded at their fair
values and Triarc's minority interest in SEPSCO will be eliminated. This
excess of purchase price over the fair value of the additional interest in
the net assets acquired will be amortized on a straight-line basis over 30
years. Triarc has not yet performed a final evaluation of purchase
accounting, and accordingly, cannot presently determine the amount of costs
in excess of net assets of acquired companies ("Goodwill") that will result
from the Triarc Merger. However, assuming that the fair value of the
additional interest acquired approximates its book value and based on the
market price per share of Triarc's Class A Common Stock on April 14, 1994,
Goodwill would increase by approximately $25,000,000 which Triarc will push
down to SEPSCO. Such increase in goodwill is net of the portion of the
merger consideration which represents the settlement of the Ehrman Litigation
(see above).
Pro forma unaudited condensed summary operating results of SEPSCO for
Transition 1993 giving effect to the Merger as if it had been consummated on
March 1, 1993, are as follows (in thousands except per share amount):
<TABLE>
<S> <C>
Net Sales $ 23,394
Operating profit 906
Loss from continuing operations before
income taxes (4)
Benefit from income taxes 1,195
Income from continuing operations 1,191
Income from continuing operations per share $ .10
</TABLE>
SEPSCO and its subsidiaries are defendants in certain other legal
proceedings arising out of the conduct of SEPSCO's business. In the opinion
of management and counsel, the ultimate outcome of these legal proceedings
will not have material adverse effect on the consolidated financial position
or results of operations of SEPSCO.
As a result of certain environmental audits, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's refrigeration operations and has filed appropriate notifications
with state environmental authorities and began a study of remediation at such
sites. SEPSCO has removed certain underground storage and other tanks at
certain facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental
remediation involved a variety of remediation actions at various facilities
of SEPSCO located in a number of jurisdictions. Such remediation varied from
site to site, ranging from testing of soil and groundwater for contamination,
development of remediation plans and removal, in certain instances, of
certain contaminated soils. Based on preliminary information and
consultations with, and certain reports of, environmental consultants and
others, SEPSCO presently estimates their cost of such remediation and/or
removal described above will approximate $3,661,000 of which $1,300,000 was
provided in Fiscal 1991, $200,000 in Fiscal 1992 and $2,161,000 in Fiscal
1993 included in "Other, net" in the results of discontinued operations. In
connection therewith SEPSCO has incurred actual costs of $1,224,000 through
December 31, 1993 and has a remaining accrual of $2,437,000 included in "Net
non-current assets of discontinued operations" in the balance sheet above as
of December 31, 1993. SEPSCO believes that its current reserves for
remediation costs are adequate.
(16) Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------
May 31 Aug. 31 Nov. 30 Feb. 28
------- ------- ------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Fiscal 1993 (a):
Net Sales $ 7,165 $ 5,132 $ 6,647 $ 9,576
Income from continuing
operations 2,324 1,815 3,227 5,206
Income (loss) from
discontinued
operations (d) (579) 1,143 374 (6,480)
Equity in extraordinary
items of affiliate -- -- -- (348)
Equity in cumulative effect
of changes in accounting
principles of affiliate,
net of taxes (f) (5,954) -- -- --
Net income (loss) (4,209) 2,958 3,601 (1,622)(b&c)
Income (loss) per share:
Continuing operations .20 .15 .28 .45 (b)
Discontinued operations (.05) .10 .03 (.56)(c)
Extraordinary items of
affiliate -- -- -- (.03)
Cumulative effect of
changes in accounting
principles of affiliate (.51) -- -- --
Net income (loss) (.36) .25 .31 (.14)(b&c)
</TABLE>
<TABLE>
<CAPTION>
Three months ended One month
------------------------ ended
May 31 Aug. 31 Nov. 30 Dec. 31
------- ------- ------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Transition 1993 (a):
Net sales $7,799 $5,308 $6,653 $3,634
Income (loss) from continuing
operations (893) 2,233 (157) 847
Loss from discontinued
operations (d) (9,423) (22) (13,910) --
Cumulative effect of changes
in accounting principles,
net of taxes (e) 7,515 -- -- --
Net income (loss) (2,801) 2,211 (14,067) 847
Income (loss) per share:
Continuing operations (.07) .19 (.02) .08
Discontinued operations (.81) -- (1.19) --
Cumulative effect of
changes in accounting
principles .64 -- -- --
Net income (loss) (.24) .19 (1.21) .08
</TABLE>
- ------------
(a) Quarterly information has been retroactively restated to reflect the
discontinuance of utility and municipal services, refrigeration and
natural gas and oil operations in Transition 1993.
(b) Includes a gain from sale of marketable security of $6,000,000 and a
$1,300,000 provision for the settlement of certain litigation.
(c) Includes a provision for anticipated losses on construction contracts in
progress of $1,608,000 and other fourth quarter adjustments of $820,000
related to net realizable value of oil and gas properties and plugging
and abandonment of wells. Includes a $375,000 provision for settlements
of certain litigation and a $2,100,000 provision for environmental
costs.
(d) For discussion see Note 3 - Discontinued Operations.
(e) For discussion see Note 1 - Summary of Significant Accounting Policies.
(f) For discussion see Note 7 - Investment in Affiliates.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
The information required by Part III of this Form 10-K is incorporated
herein by reference from SEPSCO's Proxy.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(A) 1. Financial Statements
See Index to Financial Statements (Item 8)
2. Financial Statement Schedules:
II. Amounts Receivable From Related Parties -- Two Years Ended
February 28, 1993 and Ten Months Ended December 31, 1993
IX. Short-term Borrowings -- Two Years Ended February 28, 1993
and Ten Months Ended December 31, 1993
X. Supplementary Income Statement Information -- Two Years
Ended February 28, 1993 and Ten Months Ended December
31, 1993
All other schedules are omitted because they are not applicable or the
required information in the Consolidated Financial Statements or notes
thereto.
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per
page upon written request to the Secretary of the Company at 777 South
Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401.
2.1 Agreement and Plan of Merger dated as of November 22, 1993 among
Southeastern Public Service Company ("SEPSCO"), Triarc Companies,
Inc. ("Triarc") and SEPSCO Merger Corporation, incorporated herein
by reference to Exhibit 2.1 to SEPSCO's Definitive Proxy Statement
(the "SEPSCO Proxy"), filed pursuant to Regulation 14A on March 11,
1994 (SEC file #1-4351).
3.1 Certificate of Incorporation of SEPSCO, incorporated herein by
reference to Exhibit 3.1 to SEPSCO's Annual Report on Form 10-K for
the fiscal year ended February 28, 1981 (SEC file #1-4351).
3.2 Certificate of Amendment dated September 24, 1984 to the
Certificate of Incorporation of SEPSCO, incorporated herein by
reference to Exhibit 3.2 to SEPSCO's Annual Report on Form 10-K for
the fiscal year ended February 28, 1985 (SEC file #1-4351).
3.3 By-Laws of SEPSCO, incorporated herein by reference Exhibit 3.2 to
SEPSCO's Annual Report on Form 10-K for the fiscal year ended
February 28, 1981 (SEC file #1-4351).
4.1 SEPSCO Indenture dated as of February 1, 1983, incorporated herein
by reference to Exhibit 4(a) to SEPSCO's Registration Statement on
Form S-2 dated January 18, 1983 (SEC file #2-81393).
10.1 Memorandum of Understanding dated as of September 13, 1993 between
Triarc and William Ehrman, individually and derivatively on behalf
of SEPSCO, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated September 13, 1993 (SEC
file #1-2207).
10.2 Stipulation of Settlement of the Ehrman Litigation dated as of
October 18, 1993, incorporated herein by reference to Exhibit 1 to
Triarc's Current Report on Form 8-K dated October 15, 1993 (SEC
file #1-2207).
10.3 Form of Former Management Services Agreement between Triarc and
certain other corporations, including SEPSCO, incorporated herein
by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-
K for the fiscal year ended April 30, 1993 (SEC file #1-2207).
10.4 Form of New Management Services Agreement between Triarc and
certain of its subsidiaries, including SEPSCO, incorporated herein
by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-
K for the fiscal year ended April 30, 1993 (SEC file #1-2207).
21.1 Subsidiaries of the Registrant*
____________
*being filed herewith
(B) Reports on Form 8-K:
During December 1993, the registrant filed reports on Form 8-K on the
following dates with respect to the following matters:
Date Subject Matter
---- --------------
December 22, 1993 Completion of the sale of SEPSCO's utility and
municipal services business segment and
reevaluation by SEPSCO of its estimated gain or
loss from the role of its discontinued
operations.
(D) Financial Statements:
Consolidated financial statements of Graniteville Company for each of the
two years in the period ended February 28, 1993 and the ten month period from
March 1, 1993 to January 2, 1994.
Financial statements, financial statement schedules and report of
independent certified public accountants with respect to Graniteville
Company are included immediately following Exhibit 21.1.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHEASTERN PUBLIC SERVICE COMPANY
(Registrant)
NELSON PELTZ
By:---------------------------------
Nelson Peltz
Dated: April 15, 1994 Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 15th day of April, 1994 by the following
persons on behalf of the registrant in the capacities indicated.
Signature Titles
--------- ------
NELSON PELTZ Chairman and Chief Executive
- --------------------------- Officer, and Director
(Nelson Peltz) (Principal Executive Officer)
PETER W. MAY President and Chief Operating
- --------------------------- Officer, and Director
(Peter W. May) (Principal Operating Officer)
LEON KALVARIA Vice Chairman and Director
- ---------------------------
(Leon Kalvaria)
JOSEPH A. LEVATO Executive Vice President and
- -----------------------------Chief Financial Officer
(Joseph A. Levato) (Principal Financial Officer)
FRED H.SCHAEFER Vice President and Chief
- ----------------------------- Accounting Officer
(Fred H. Schaefer) (Principal Accounting Officer)
PAGE
<PAGE>
<TABLE>
Schedule II
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Amounts Receivable From Related Parties and Underwriters, Promoters
And Employees Other Than Related Parties
Two years ended February 28, 1993 and ten months ended December 31, 1993
(In thousands)
<CAPTION>
-Additions- Balance at
Interest and end of period
Balance at amortization -----Deductions----- -----------------
Name of beginning of deferred Offset of Not
Debtor of period debt discount payable Payments Current current
------- ---------- ------------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended February
29, 1992 Triarc $55,847 7,336 7,209 -- $ 687 $55,287
------- ----- ----- ------ ------- -------
Year ended February
28, 1993 Triarc $55,974 7,336 9,854 1,201 $25,717 $26,538
------- ----- ----- ------ ------- -------
Ten months ended
December 31, 1993 Triarc $52,255 3,526 3,308 27,115 $ -- $25,358
------- ----- ----- ------ ------- -------
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule IX
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Short-term Borrowings
Two years ended February 28, 1993 and ten months ended December 31, 1993
(Dollars in thousands)
<CAPTION>
Maximum amount Average amount Weighted average
Balance Weighted outstanding outstanding interest rate
at end average during the during the during the
Classification of period interest rate period period (1) period
-------------- ---------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended February 29, 1992:
Accounts receivable financing $8,789 27.9% $10,679 $7,763 28.9%
------ ----- ------- ------ -----
Year ended February 28, 1993:
Accounts receivable financing $9,536 25.6% $11,641 $8,609 24.7%
------ ----- ------- ------ -----
Ten months ended December 31, 1993:
Accounts receivable financing $ -- -- % $12,689 $10,542 20.8%
------ ----- ------- ------- -----
<FN>
(1) The average amount outstanding during the year was computed on a daily or month-end weighted average basis. The
weighted average interest rate was computed by expressing interest and commissions expense applicable to these
borrowings as a percentage of the weighted average outstanding borrowings.
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule X
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Supplementary Income Statement Information
Two years ended February 28, 1993 and ten months ended December 31, 1993
(In thousands)
<CAPTION>
Year ended Ten months
February 28 or 29, ended
------------------- December 31,
1992 1993 1993
------ ------ ------
<S> <C> <C> <C>
Maintenance and Repairs $864 $982 $745
Taxes, other than payroll and income taxes $611 $710 $607
<FN>
Note: Other supplementary items are less than 1% of operating revenues in each year. Information presented above has been
restated for discontinued operations.
</TABLE>
PAGE
<PAGE>
Exhibit 21.1
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant
April 15, 1994
The subsidiaries of Southeastern Public Service Company, their
respective states or jurisdictions of organization and the names under which
such subsidiaries do business are as follows:
State or Jurisdiction
Under which Organized
---------------------
Crystal Ice & Cold Storage, Inc. Delaware
Houston Oil & Gas Company, Inc. Delaware
Northwestern Ice & Cold Storage Company Oregon
Public Gas Company (formerly Southeastern
Propane Gas Company) Florida
Royal Palm Ice Company Florida
SEPSCO Merger Corporation Delaware
Southeastern Gas Company Delaware
Geotec Engineers, Inc. West Virginia
Western Refrigeration & Cold Storage Company California
PAGE
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 1994
TOGETHER WITH REPORT
OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PAGE
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
Graniteville Company:
We have audited the accompanying consolidated balance sheets of
Graniteville Company (a South Carolina corporation and 49% owned by
Southeastern Public Service Company and 51% owned by Triarc Companies, Inc.,
formerly DWG Corporation) and Subsidiaries as of January 2, 1994 and February
28, 1993, and the related consolidated statements of income and retained
earnings and cash flows for the ten month period ended January 2, 1994 and
for each of the two years in the period ended February 28, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Graniteville Company and
Subsidiaries as of January 2, 1994 and February 28, 1993, and the results of
their operations and their cash flows for the ten month period ended January
2, 1994 and for each of the two years in the period ended February 28, 1993,
in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions effective March 2, 1992.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules V, VI,
VIII and IX for the ten month period ended January 2, 1994, and for each of
the two years in the period ended February 28, 1993 are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen & Co.
Columbia, South Carolina
February 25, 1994.
(Except with respect to the matter
discussed in Note 7, as to which
the date is March 10, 1994).
<TABLE> GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
February 28, January 2,
1993 1994
---- ----
(In thousands)
Assets
<S> <C> <C>
Current assets:
Cash and equivalents $ 1,235 $ 2,324
Receivables, net (Notes 1 and 7) 65,463 84,489
Inventories (Notes 1, 3 and 7) 81,150 89,052
Other current assets 1,326 1,244
-------- --------
Total current assets 149,174 177,109
-------- --------
Properties, at cost (Notes 1, 5 and 7) 160,187 178,937
Less accumulated depreciation and amortization 54,715 60,987
-------- --------
105,472 117,950
-------- --------
Note receivable from Triarc (including
accrued interest) (Notes 2 and 7) - 70,446
Other assets 3,634 6,130
-------- --------
$258,280 $371,635
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term
debt (Note 7) $ 9,809 $ 12,174
Accounts payable 24,750 24,621
Accrued salaries and wages (Note 13) 8,741 5,271
Deferred income taxes (Notes 1 and 6) 5,482 6,506
Other current liabilities 5,990 10,058
-------- --------
Total current liabilities 54,772 58,630
Long-term debt (Notes 2 and 7) 52,896 150,949
Deferred income taxes (Notes 1 and 6) 21,374 21,934
Other liabilities 1,626 1,706
-------- --------
130,668 233,219
-------- --------
Commitments and contingencies (Notes 8 and 11)
Stockholders' equity:
Common stock, $5.00 par value; 10,000,000
shares authorized; 4,984,045 shares issued 24,920 24,920
Additional paid-in capital 41,712 41,712
Retained earnings 60,980 71,784
-------- --------
Total stockholders' equity 127,612 138,416
-------- --------
$258,280 $371,635
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings
<CAPTION>
Year Ended Ten Months
----------------------- Ended
March 1, February 28, January 2,
1992 1993 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating revenues $456,402 $499,060 $448,867
-------- -------- --------
Operating costs and expenses:
Cost of sales 387,946 402,190 369,132
Depreciation and amortization 9,897 10,379 11,067
General and administrative
expenses (Notes 10, 13 and 14) 27,273 34,902 36,610
Facilities relocation and
corporate restructuring charges
(Notes 12 and 14) 2,500 1,855 1,843
-------- -------- --------
427,616 449,326 418,652
-------- -------- --------
Operating profit 28,786 49,734 30,215
-------- -------- --------
Other expenses (income):
Interest expense 11,941 9,282 12,024
Interest income (100) (199) (79)
Interest income from
Triarc (Note 2) -- -- (4,452)
Loss on investment in Chesapeake
Insurance Company Limited
(Note 10) -- -- 2,500
Other, net (280) (41) (520)
-------- -------- --------
11,561 9,042 9,473
-------- -------- --------
Income before income taxes
and cumulative effect of
accounting changes 17,225 40,692 20,742
Provision for income taxes 4,962 15,332 9,938
-------- -------- --------
Income before cumulative effect
of changes in accounting
principles 12,263 25,360 10,804
Cumulative effect of changes in
accounting principles (Note 4) -- (13,036) --
-------- -------- --------
Net income 12,263 12,324 10,804
Retained earnings at beginning
of period 44,643 54,788 60,980
Cash dividends on common stock (2,118) (6,132) --
-------- -------- --------
Retained earnings at end of period $ 54,788 $ 60,980 $ 71,784
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE> GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended Ten Months
----------------------- Ended
March 1, February 28, January 2,
1992 1993 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,263 $ 12,324 $ 10,804
Adjustments to reconcile net income
to net cash and equivalents provided
by (used in) operating activities:
Depreciation and amortization 9,897 10,379 11,067
Amortization of deferred financing
costs -- -- 893
Increase in deferred income taxes,
net of accounting changes 2,996 3,142 1,584
Provision for doubtful accounts 160 1,421 999
Interest receivable from Triarc -- -- (3,846)
Loss on investment in Chesapeake
Insurance Company Limited -- -- 2,500
Cumulative effect of changes in
accounting principles -- 13,036 --
Other, net 44 71 (464)
Decrease (increase) in:
Receivables (15) (34,682) (20,025)
Inventories 221 (3,476) (7,902)
Other current assets 2,684 (237) (196)
Increase (decrease) in:
Accounts payable 2,466 1,368 (129)
Other current liabilities (7,863) 3,928 697
Other liabilities -- 429 80
-------- -------- --------
Net cash and equivalents
provided by (used in)
operating activities 22,853 7,703 (3,938)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (11,384) (9,731) (22,599)
Advance to Triarc -- -- (66,600)
Proceeds from sale of machinery and
equipment 245 508 540
Other, net (3,070) 236 112
-------- -------- --------
Net cash and equivalents
used in investing
activities (14,209) (8,987) (88,547)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in short-term
borrowings 1,959 (1,959) --
Repayment of long-term debt (10,378) (8,478) (69,810)
Additions to long-term debt 702 18,750 169,384
Payment of dividends on common stock (2,118) (6,132) --
Increase in deferred financing costs -- (500) (6,000)
-------- -------- --------
Net cash and equivalents
provided by (used in)
financing activities (9,835) 1,681 93,574
-------- -------- --------
Net increase (decrease) in cash and
equivalents (1,191) 397 1,089
Cash and equivalents at beginning
of period 2,029 838 1,235
-------- -------- --------
Cash and equivalents at end of period $ 838 $ 1,235 $ 2,324
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the
period for:
Interest $ 11,974 $ 9,334 $ 11,183
======== ======== ========
Income taxes $ (8,516) $ 8,105 $ 9,301
======== ========= ========
Supplemental schedule of non-cash
investing and financing activities:
Total capital expenditures $ 11,399 $ 10,075 $ 23,443
Capital expenditures financed
by capital leases (15) (344) (844)
-------- -------- --------
$ 11,384 $ 9,731 $ 22,599
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1994
(1) Summary of Significant Accounting Policies
Basis of Presentation
Graniteville Company ("the Company") is a 51% owned subsidiary of
Triarc Companies, Inc. (formerly DWG Corporation and referred to herein
as "Triarc" and, collectively with its subsidiaries, "Triarc
Companies") and 49% owned by Southeastern Public Service Company
("SEPSCO"). At January 2, 1994, SEPSCO was 71% owned by Triarc.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, C. H. Patrick & Co., Inc.
("C. H. Patrick") and Graniteville International Sales, Inc.
("Graniteville International"), an inactive corporation. All
significant intercompany balances and transactions have been eliminated
in consolidation.
Fiscal Year/Change in Fiscal Year
On October 27, 1993, the Board of Directors of Triarc approved a change
in Triarc's fiscal year from a fiscal year ending April 30 to a
calendar year ending December 31 effective for the transition period
ending December 31, 1993. The fiscal years of all of Triarc's
subsidiaries which did not end on December 31 were also so changed.
Accordingly, the Company has adopted a 52-53 week period ending on the
Sunday nearest the last day of December. As used herein, "Transition
1993" refers to the ten month period (44 weeks) ended January 2,
1994, "Fiscal 1993" refers to the year (52 weeks) ended February 28,
1993 and "Fiscal 1992" refers to the year (52 weeks) ended March 1,
1992.
Inventories
The Company's inventories, consisting of materials, labor and overhead,
are valued at the lower of cost or market. Cost for substantially all
inventories is determined on the last-in, first-out ("LIFO") basis.
Depreciation
Depreciation is computed principally on the straight-line basis using
the estimated useful lives of the related major classes of properties:
3 to 6 years for automotive and transportation equipment; 12 to 14
years for machinery and equipment; and 15 to 60 years for buildings and
improvements. Gains and losses arising from disposals are included in
current operations.
Amortization of Deferred Financing Costs
Deferred financing costs are being amortized as interest expense over
the life of the respective debt using the interest rate method.
Unamortized deferred financing costs are included in "Other assets" in
the accompanying consolidated balance sheets.
Research and Development
Research and development costs are expensed during the year in which
the costs are incurred and amounted to $691,000 in Fiscal 1992,
$744,000 in Fiscal 1993, and $640,000 in Transition 1993.
Income Taxes
The Company files a consolidated Federal income tax return with its
wholly-owned subsidiaries.
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
Revenue Recognition
The Company records revenues principally when inventory is shipped.
The Company also records revenues to a lesser extent on a bill and hold
basis under which the goods are complete, packaged and ready for
shipment; such goods are effectively segregated from inventory which is
available for sale; the risks of ownership of the goods have passed to
the customer; and such underlying customer orders are supported by
written confirmation.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade accounts
receivable. The Company's customers consist of domestic and foreign
apparel producers and other users of textile products. The Company
performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information. In addition, the Company factors, on a
non-recourse basis, a significant volume of accounts receivable,
thereby reducing its exposure to credit risk. Historically, the
Company has not incurred material credit-related losses.
Major Customer
Sales to a group of customers under common control totaled
approximately 11%, 14%, and 11%, of the Company's sales in Fiscal 1992,
Fiscal 1993, and Transition 1993, respectively. No other customer or
similar group accounted for more than 10% of the Company's sales in
such periods.
Reclassifications
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2) Change in Control and the Triarc Reorganization
On April 23, 1993, DWG Acquisition Group, LP ("DWG Acquisition"), a
newly formed limited partnership controlled by Nelson Peltz and Peter
W. May, acquired control of Triarc from Victor Posner, the former
Chairman and Chief Executive Officer of Triarc, and certain entities
controlled by him (collectively, "Posner") through a series of related
transactions (the "Reorganization"). Immediately prior to the
Reorganization, Posner owned approximately 46% of the outstanding
common stock of Triarc.
The principal elements comprising the equity portion of the
Reorganization included the following components:
DWG Acquisition purchased from Posner 5,982,867 shares of
Triarc's Class A common stock, par value $.10 per share (the
"Triarc Class A Common Stock"), representing approximately 28.6%
of Triarc's common equity outstanding immediately after the
Reorganization, for $12.00 per share, or an aggregate purchase
price of $71,794,000.
All of the remaining shares of the Class A Common Stock owned by
Posner were exchanged for shares of newly-created, non-voting,
convertible redeemable preferred stock of Triarc.
Victor Posner and his son, Steven Posner, the former Vice
Chairman of Triarc Companies, resigned as directors, officers and
employees of Triarc Companies and all of its subsidiaries. In
connection with such resignations, Victor Posner did not receive
any severance payments. However, in order to induce Steven
Posner to resign, Triarc entered into a five year consulting
agreement (the "Consulting Agreement") with Steven Posner which
provides for an initial payment of $1,000,000 at the commencement
of the term of such agreement and an annual consulting fee of
$1,000,000. The Consulting Agreement does not require Steven
Posner to provide any substantial services to Triarc and Triarc
presently does not expect that it will receive any such services
from him. As a result, the $6,000,000 aggregate amount of
payments required under the Consulting Agreement was expensed in
Triarc's fiscal year ended April 30, 1993, of which $229,000 has
been allocated to the Company and is included in "Facilities
Relocation and Corporate Restructuring Charges" (see Note 14).
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and of Merrill Lynch & Co. ("Merrill Lynch" and together
with DLJ, the "DLJ/Merrill Lynch Investors") purchased from
Triarc an aggregate of 833,332 newly issued shares of Triarc
Class A Common Stock, representing approximately 4.0% of the
Triarc Class A Common Stock outstanding immediately after the
Reorganization, for $12.00 per share, the same price at which DWG
Acquisition purchased its Triarc Class A Common Stock. The
aggregate price approximated $10,000,000 (the "Equity
Financing").
Concurrently with the consummation of the Reorganization (the
"Closing"), certain debt of Triarc and its subsidiaries, including the
Company, was refinanced in order to reduce borrowing costs and to make
available additional funds for general working capital and liquidity
purposes. The principal refinancing transactions consummated in
connection with the Reorganization included the establishment of a new
$180,000,000 credit facility for Graniteville (the "Graniteville Credit
Facility") providing for $80,000,000 of term loans and $100,000,000 of
revolving credit loans (see Note 7).
The following table summarizes the intended aggregate sources and uses
of funds by the Company in connection with the Triarc Reorganization
(in thousands):
<TABLE>
<S> <C>
Sources:
Term Loan $ 80,000
Revolving Credit Loan 100,000
--------
Total sources of funds $180,000
========
Uses:
Repay debt $ 82,200
Advance to Triarc 66,600
Fees and expenses 6,000
Fund capital expenditures and working capital 25,200
--------
Total uses of funds $180,000
========
</TABLE>
The advance to Triarc is evidenced by a note receivable which bears
interest at the rate of 9.5% per annum and is due on April 15, 2003.
Interest only is payable semi-annually either in cash or by the
issuance of additional notes identical to the original note, at the
option of Triarc. However, at least 20% of each interest payment due
through and including April 15, 1995 must be in cash and at least 40%
of each interest payment thereafter must be in cash. As of January 2,
1994, the note receivable from Triarc consists of the following (in
thousands):
<TABLE>
<S> <C>
Advance to Triarc $ 66,600
Capitalized interest 2,427
Accrued interest 1,419
--------
$ 70,446
========
</TABLE>
(3) Inventories
The following is a summary of the major classifications of inventories:
<TABLE>
<CAPTION>
February 28, January 2,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 15,696 $ 16,808
Work in process 5,516 6,193
Finished goods 57,512 63,400
Supplies 2,426 2,651
-------- --------
$ 81,150 $ 89,052
======== ========
</TABLE>
Had the first-in, first-out method been used, inventories would have
been approximately $2,500,000 higher at February 28, 1993 and January
2, 1994.
(4) Changes in Accounting Principles
Effective March 2, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
("SFAS 109") and SFAS No. 106, "Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"). The Company's adoption of such
standards resulted in a charge of $13,036,000 to the Company's results
of operations for Fiscal 1993. Such charge consisted of $12,314,000
and $722,000, net of applicable income taxes of $429,000, related to
SFAS 109 and SFAS 106, respectively, and is reported in the "Cumulative
effect of changes in accounting principles".
(5) Properties
The following is a summary of the major classifications of properties:
<TABLE>
<CAPTION>
February 28, January 2,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Land $ 4,358 $4,358
Buildings and improvements 25,717 35,083
Machinery and equipment 125,325 134,628
Automotive and
transportation equipment 4,787 4,868
-------- --------
160,187 178,937
Less accumulated depreciation
and amortization 54,715 60,987
-------- --------
$105,472 $117,950
======== ========
</TABLE>
(6) Income Taxes
<TABLE>
The provision for income taxes consists of the following components:
<CAPTION>
Ten Months
Year Ended Ended
----------------------- ----------
March 1, February 28, January 2,
1992 1993 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,974 $ 11,109 $ 7,124
State 7 835 1,229
-------- -------- --------
1,981 11,944 8,353
-------- -------- --------
Deferred:
Federal 2,411 2,234 1,429
State 570 1,154 156
-------- -------- --------
2,981 3,388 1,585
-------- -------- --------
$ 4,962 $ 15,332 $ 9,938
======== ======== ========
</TABLE>
The current deferred tax liability and the non-current deferred tax
liability consists of the following components (in thousands):
<TABLE>
<CAPTION>
February 28, 1993 January 2, 1994
---------------------- ----------------------
Current Non-current Current Non-current
Liability Liability Liability Liability
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Receivables $ 1,386 $ -- $ 1,706 $ --
Inventory (10,566) -- (10,694) --
Accrued
compensation 2,704 -- 1,462 --
Other accrued
liabilities 984 -- 1,009 --
Property, plant
and equipment -- (19,566) -- (20,188)
Other, net 10 (1,808) 11 (1,746)
-------- -------- -------- --------
$ (5,482) $ (21,374) $ (6,506) $ (21,934)
======== ======== ======== ========
</TABLE>
Deferred income tax expense results from temporary differences in
recognition of revenue and expense for income tax and financial
statement purposes. The tax effects of the principal temporary
differences are as follows (such disclosure is not presented for
Transition 1993 as it is not required under SFAS 109):
<TABLE>
<CAPTION>
Year Ended
---------------------------
March 1, February 28,
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Excess of tax over book
depreciation and amorti-
zation on properties $ 919 $ 1,508
Restructuring costs (850) 320
Book-tax differences resulting
from purchase accounting
adjustments (42) (94)
Employee benefit plan payment 3,064 --
Alternative minimum tax
carryforward (976) 2,684
Maintenance accrual not
deductible until paid -- (373)
Compensation accrual not
deductible until paid 756 (1,487)
Change in deferred taxes for
rate increase to 35% -- --
Inventory capitalization (171) 43
Bad debt expense 3 29
Other, net 278 758
-------- --------
$ 2,981 $ 3,388
======== ========
</TABLE>
Notes to Consolidated Financial Statements
The difference between the reported provision for income taxes and a
computed tax based on income before income taxes and cumulative effect
of changes in accounting principles at the statutory rate of 34% in
Fiscal 1992 and Fiscal 1993 and 35% in Transition 1993 is reconciled as
follows:
<TABLE>
<CAPTION>
Year Ended Ten Months
----------------- Ended
March 1, February 28, January 2,
1992 1993 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income before income
taxes and cumulative effect
of changes in accounting
principles $ 17,225 $ 40,692 $ 20,742
======== ======== ========
Computed expected tax
provision $ 5,857 $ 13,835 $ 7,260
Increase (decrease) in Federal
taxes resulting from:
Amortization of nontaxable
credits resulting from
purchase accounting
adjustments (1,350) -- --
Capital loss carryforward -- -- 875
Change in deferred taxes for
rate increase to 35% -- -- 638
State income taxes net of
federal benefit 380 1,313 674
Other, net 75 184 491
-------- -------- --------
$ 4,962 $ 15,332 $ 9,938
======== ======== ========
</TABLE>
Federal income tax returns of the Company have been examined by the
Internal Revenue Service ("IRS") for the tax years 1986 through 1988. Such
audit has been substantially resolved at no material cost to the Company.
The IRS has recently commenced the examination of the Company's Federal
income tax returns for the tax years from 1989 through 1992. The amount
and timing of any payments required as a result of the 1989 through 1992
audit cannot presently be determined. However, the Company believes that
it has adequate reserves for any tax liabilities, including interest, that
may result from all such examinations.
(7) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 28, January 2,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Term loans $ 60,000 $ 72,500
Revolving loan - 89,324
Capitalized lease obligations
(Note 8):
With an affiliate 447 42
Other 330 751
6.5% Washington National Insurance
Company Pollution Control note 946 -
Notes collateralized by machinery
and equipment maturing at various
dates through 1996 with interest
at various fixed and floating
rates (weighted average interest
rate of 8.2% at February 28, 1993
and 8.1% at January 2, 1994 982 506
--------- --------
62,705 163,123
Less current portion of
long-term debt 9,809 12,174
--------- --------
$ 52,896 $ 150,949
========= ========
</TABLE>
Aggregate annual maturities of the long-term debt as of January 2, 1994
are as follows (in thousands):
<TABLE>
<CAPTION>
Calendar Year
-------------
<S> <C>
1994 $ 12,174
1995 12,274
1996 12,173
1997 12,115
1998 114,387
--------
$ 163,123
========
</TABLE>
In connection with the Reorganization, on April 23, 1993 the Company
and C. H. Patrick entered into a $180,000,000 senior secured credit
facility with the Company's commercial lender as agent for itself and
various lenders, repaid its prior term loan and repurchased all
receivables that had been sold to such commercial lender under the
Company's non-notification factoring arrangement. The Graniteville
Credit Facility consists of a senior secured revolving credit facility
of up to $100,000,000 (the "Revolving Loan") with a $7,500,000 sublimit
for letters of credit and an $80,000,000 senior secured term loan (the
"Term Loan") and expires in 1998. As part of the Graniteville Credit
Facility, Graniteville's commercial lender will continue to factor the
Company's and C. H. Patrick's receivables, with credit balances
assigned to secure the Graniteville Credit Facility (the "Factoring
Arrangement"). The Company incurred approximately $6,500,000 of fees
and expenses, including $500,000 of such fees and expenses incurred in
Fiscal 1993, in connection with the Graniteville Credit Facility which
are recorded as deferred financing costs.
Borrowings under the Revolving Loan bear interest, at the Company's
option, at either the prime rate plus 1.25% per annum or the 90-day
London Interbank Offered Rate (the "LIBOR rate") plus 3.00% per annum
(weighted average interest rate of 7.15% at January 2, 1994). When the
unpaid principal balance of the Term Loan is less than $55,000,000, the
interest rate on the Revolving Loan will be reduced to the prime rate
plus 1.00% or the 90-day LIBOR rate plus 2.75%. All LIBOR rate loans
have a 90-day interest period and are limited to the lesser of
$90,000,000 or 50% of the outstanding balance in multiples of
$10,000,000 under the Graniteville Credit Facility. The borrowing base
for the Revolving Loan is the sum of 90% of accounts receivable which
are credit-approved by the factor ("Credit Approved Receivables"), plus
85% of all other eligible accounts receivable, plus 65% of eligible
inventory, provided that advances against eligible inventory shall not
exceed $35,000,000 at any one time. At January 2, 1994, the Company
had approximately $11,000,000 of unused availability under the
Revolving Loan. The Company, in addition to the aforementioned
interest, pays a commission of 0.45% on all Credit-Approved
Receivables, including a 0.20% bad debt reserve which will be shared
equally by Graniteville's commercial lender and the Company after
deducting customer credit losses.
On March 10, 1994, the Company amended the Graniteville Credit Facility
to provide for an increase in the maximum Revolving Loan to
$107,000,000 during the period March 10, 1994 through September 1, 1994
with a corresponding increase in eligible inventory to $42,000,000.
The Term Loan is repayable $11,500,000 in 1994, $12,000,000 in 1995
through 1997 and $25,000,000 in 1998. Until the unpaid principal of
the Term Loan is equal to or less than $60,000,000 at the end of any
year, the Company must make mandatory prepayments in an amount equal to
50% of Excess Cash Flow, as defined, for such year. The Term Loan
bears interest at the prime rate plus 1.75% per annum or the 90-day
LIBOR rate plus 3.5% per annum (weighted average interest rate of 7.39%
at January 2, 1994). When the unpaid principal balance of the Term
Loan is less than $55,000,000, the interest rate thereon will be
reduced to the prime rate plus 1.375% or the 90-day LIBOR rate plus
3.125%. In each case, the LIBOR rate is limited to the lesser of
$90,000,000 or 50% of the outstanding balance in multiples of
$10,000,000 under the Graniteville Credit Facility. In the event that
the Company prepays the Term Loan, in whole or in part, prior to the
end of the third year, then a prepayment fee shall be payable as
follows: 2% of the amount prepaid if the prepayment occurs in the
first year, 1% of the prepayment during the second year and 1/2 of 1%
in the third year.
The Graniteville Credit Facility is secured by all of the assets of the
Company and C. H. Patrick, including all accounts receivable, notes
(including the $66,600,000 note the Company received from Triarc as an
intercompany advance), inventory, machinery and equipment, trademarks,
patents and other intangible assets, and all real estate. The Company
has also pledged as collateral the stock of C. H. Patrick.
Additionally, Triarc and Graniteville International have
unconditionally guaranteed all obligations under the Graniteville
Credit Facility. As collateral for such guarantee, Triarc pledged (i)
51% of the issued and outstanding stock of the Company (subject to pre-
existing pledge of such stock in connection with Triarc's intercompany
note payable to SEPSCO in the principal amount of $26,538,000), and
(ii) the issued and outstanding common stock of SEPSCO owned by Triarc.
The Graniteville Credit Facility contains various covenants which (a)
require meeting certain financial amount and ratio tests; (b) limit,
among other items (i) the incurrence of indebtedness, (ii) investments,
(iii) asset dispositions, (iv) capital expenditures and (v) affiliate
transactions other than in the normal course of business; and (c)
restrict the payment of dividends (see below).
If the Company becomes eligible to join in Triarc's consolidated
Federal income tax return, the Company will be permitted to pay to
Triarc an amount equal to the Federal income tax liability that the
Company and its subsidiaries would have paid if they had filed a
separate consolidated Federal income tax return. Additionally, the
Company will be permitted to pay dividends or make loans or advances to
its affiliates in an amount equal to 50% of the net income of the
Company accumulated from the beginning of the first year commencing on
or after December 20, 1994, provided that the outstanding principal
balance of the Term Loan is less than $50 million at the time of the
payments and certain other conditions are met. Accordingly, the
Company in unable to pay any dividends or make any loans or advances to
its stockholders, including Triarc, prior to December 31, 1995.
(8) Lease Commitments
The Company leases certain machinery and automotive and transportation
equipment from an affiliate and from unrelated third parties under
long-term lease obligations which are accounted for as capital leases
and are included in "Properties, at cost" in the accompanying
consolidated balance sheets at February 28, 1993 and January 2, 1994 in
the amount of $4,392,000 and $987,000, respectively.
The future minimum lease payments (net of sublease rentals which are
not significant) under capital leases and operating leases with an
initial noncancelable term in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
(In thousands)
Calendar Year
-----------------
<S> <C> <C>
1994 $ 278 $ 1,962
1995 250 1,861
1996 181 1,805
1997 123 288
1998 64 115
Thereafter -- 37
------ -------
Total minimum lease payments $ 896 $ 6,068
====== =======
Less amounts representing interest 103
------
Present value of minimum lease
payments (Note 7) $ 793
======
</TABLE>
Rental expense under operating leases which is primarily for the rental
of real estate and equipment, was $1,032,000 in Fiscal 1992, $1,794,000
in Fiscal 1993, and $1,911,000 in Transition 1993.
(9) Postretirement Benefits Other than Pensions
Postretirement benefits other than pensions consist of health care and
life insurance benefits provided to a group of former employees who
retired prior to January 1, 1990, and a limited health care benefit
program provided to early retirees. With the exception of a group of
retirees who retired prior to January 1, 1982, a portion of the cost of
these benefits is paid by the retiree.
Effective March 2, 1992, Graniteville adopted SFAS 106 and accordingly,
provided for the unfunded accumulated postretirement obligation as of
that date. Prior thereto, the Company accounted for postretirement
obligation payments on a pay-as-you-go basis. In Fiscal 1992, such
payments were immaterial.
Net other postretirement benefit expense consists of the following:
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended
February 28, January 2,
1993 1994
----------- ----------
(In thousands)
<S> <C> <C>
Service cost--benefit earned
during the period $ 7 $ 6
Interest cost on accumulated
postretirement benefit
obligation 88 74
---- ----
$ 95 $ 80
==== ====
</TABLE>
The accumulated postretirement benefit obligation consists of the
following:
<TABLE>
<CAPTION>
February 28, January 2,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Retirees and dependents $ 935 $ 1,013
Active employees eligible to retire 88 96
Active employees not eligible to retire 112 131
------- -------
Total obligation $ 1,135 $ 1,240
Unrecognized net loss -- (97)
------- -------
Accrued postretirement benefit
obligation recognized in the
balance sheet $ 1,135 $ 1,143
======= =======
</TABLE>
For purposes of measuring the expected postretirement obligation, a 12%
annual rate of increase in the per capita claims cost was assumed for
1994. This rate is assumed to decrease by 1% per year to 6% in the
year 2000 and remain level thereafter. The discount rate used in
determining the net other postretirement benefit expense for Fiscal
1993 and Transition 1993 and the accumulated postretirement benefit
obligation as of February 28, 1993 was 8%. The discount rate used in
determining the accumulated postretirement benefit obligation as of
January 2, 1994 was 7%.
If the health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation as of January 2, 1994
would have been increased by approximately $90,000. The effect of this
change on the aggregate ot the service cost and interest cost
components of the net other postretirement benefit expense for
Transition 1993 would be an increase of approximately $8,300.
(10) Transactions with Affiliates
By agreement, Triarc provides certain management services including,
among others, legal, insurance and financial services and incurs
certain costs on behalf of the Company. In Fiscal 1992, Fiscal 1993
and Transition 1993 such costs aggregated $1,792,000, $2,441,000, and
$7,904,000, respectively. Such amounts include approximately $640,000,
$1,299,000, and $105,000 in Fiscal 1992, Fiscal 1993, and Transition
1993, respectively, representing allocations to the Company in
accordance with the applicable management services agreement of certain
reserves established by Triarc for amounts owed by certain former
affiliates of the Company in connection with the providing by Triarc of
such management services. The Company, through Triarc, also leased
space from an affiliate for approximately $864,000, $824,000, and
$612,000 in Fiscal 1992, Fiscal 1993, and Transition 1993,
respectively. In July 1993, Triarc Companies gave notice to terminate
the lease effective January 31, 1994 and the Company has recorded a
charge of $1,614,000 in Transition 1993 representing the allocated cost
of such lease termination (see Note 14).
Prior to December 1993, the Company maintained certain property
insurance coverage with Chesapeake Insurance Company Limited
("Chesapeake Insurance"), an affiliated company registered in Bermuda.
Premiums attributable to such insurance coverage amounted to $203,000
in Fiscal 1992, $212,000 in Fiscal 1993 and $84,000 in Transition 1993.
The Company also maintained certain insurance coverage with an
unaffiliated insurance company for which Chesapeake Insurance reinsured
a portion of the risk. Net premiums attributable to such reinsurance
were approximately $3,047,000 in Fiscal 1992, $2,619,000 in Fiscal 1993
and $1,643,000 in Transition 1993. In addition, prior to July 1, 1993,
Insurance and Risk Management Inc., an affiliate until April 23, 1993,
acted as agent or broker in connection with insurance coverage obtained
by the Company and provided claims processing services for the Company.
The commissions and payments for such services paid to such company
were $455,000, $459,000 and $77,000 in Fiscal 1992, Fiscal 1993 and the
applicable period of Transition 1993, respectively.
The Company had a $2,500,000 investment in the convertible preferred
stock of Chesapeake Insurance. During its quarter ended September 30,
1993, Chesapeake Insurance increased its reserve for insurance and
reinsurance losses by $10,000,000 and as a result reduced the
stockholders' equity of Chesapeake Insurance to $308,000. In December
1993, Triarc decided to cease writing insurance and reinsurance of any
kind through Chesapeake Insurance. As a result, Chesapeake Insurance
will not have any future operating cash flows and its remaining
liabilities, including payment of claims on insurance previously
written, will be liquidated with assets on hand. Accordingly, the
preferred stock investment is not recoverable and the Company has
written off its investment in such stock since the decline in value was
deemed to be other than temporary.
Certain machinery and automotive equipment is leased from an affiliate
(see Note 8). Interest charges on these lease obligations amounted to
$97,000 in Fiscal 1992, $71,000 in Fiscal 1993, and $16,000 in
Transition 1993.
On October 1, 1993, Triarc began leasing corporate aircraft from
Triangle Aircraft Services Corporation ("TASCO"), a company owned by
Messrs. Peltz and May. Usage fees charged to the Company aggregated
$17,000 during Transition 1993 (none in prior periods).
(11) Legal Matters
The Company participates in regional waste water treatment facilities
and considers that it is in substantial compliance with water pollution
regulations. In 1987, the Company was, however, notified by the South
Carolina Department of Health and Environmental Control ("DHEC") that
DHEC discovered certain contamination of Langley Pond near
Graniteville, South Carolina and asserted that the Company may be one
of the parties responsible for such contamination. The Company entered
into a consent decree providing for the study and investigation of the
alleged pollution and its sources. The study report prepared by the
Company's environmental consulting firm and filed with DHEC in April
1990, recommended that pond sediments be left undisturbed and in place.
DHEC responded by requesting that the Company submit additional
information concerning potential passive and active remedial
alternatives, with accompanying supportive information. In May 1991
the Company provided this information to DHEC in a report of its
independent environmental consulting firm. The 1990 and 1991 reports
concluded that pond sediments should be left undisturbed and in place
and that other less passive remediation alternatives either provided no
significant additional benefits or themselves involved adverse effects
on human health, to existing recreational uses or to the existing
biological communities. The Company is unable to predict at this time
what further actions, if any, may be required in connection with
Langley Pond or what the cost thereof may be. However, given the
passage of time since the submission of the two reports by the
Company's environmental consulting firm without any objection or
adverse comment on such reports by DHEC and the absence of desirable
remediation alternatives, other than continuing to leave the Langley
Pond sediments in place and undisturbed as described in the reports,
the Company believes the ultimate outcome of this matter will not have
a material adverse effect on the Company's consolidated results of
operations or financial position.
The Company and its subsidiaries are defendants in certain other legal
proceedings arising out of the ordinary conduct of the Company's
business. In the opinion of management, the ultimate outcome of these
legal proceedings will not have a material adverse effect on the
consolidated financial position or results of operations of the
Company.
(12) Restructuring Costs
In Fiscal 1992, the Company recorded a restructuring charge of
$2,500,000 representing costs and expenses associated with plans to
cease the manufacture and sale of cotton yarns and shuttle woven,
industrial greige fabrics. Actual costs and expenses associated with
the strategic restructuring exceeded management's original estimate and
Fiscal 1993 results include an additional charge of $1,855,000.
(13) Retirement and Incentive Compensation Plans
The Company maintains a 401(k) defined contribution plan which covers
substantially all employees. Employees may contribute from 1% to 8% of
their total earnings, subject to certain limitations. In addition, the
Company may make discretionary contributions to the plan.
Discretionary retirement contribution expense was $1,000,000 in both
Fiscal 1993 and Transition 1993 (none in Fiscal 1992).
Effective with the first payroll period in March 1994, the Company made
various changes to the retirement plan including an increase in
allowable employee contributions. Employees may now contribute up to
15% of earnings and the Company will match up to 75% of employee
contributions based on years of service but limited to the first 4%.
In Fiscal 1993 and prior years, the Company maintained management
incentive plans (the "Incentive Plans") which provided for incentive
compensation of up to 10% of operating earnings and up to 10% of
earnings from sales or other dispositions of assets. The plans were
administered by the Compensation Committee of the Board of Directors of
Triarc and awards for elected corporate officers were approved by the
Board. In accordance with the terms of these Incentive Plans the
Company provided $192,000 in Fiscal 1992 (net of reversal of $2,000,000
accrued in prior years) and $3,538,000 in Fiscal 1993 and reversed
prior year accruals of $968,000 in Transition 1993 due to the
termination of the plans.
During Transition 1993, the Company replaced the previous Incentive
Plans with annual and mid-term cash incentive plans (the "New Incentive
Plans") for certain officers and key employees. The New Incentive
Plans provide for discretionary cash awards depending upon the
Company's financial performance as compared to target performance. The
New Incentive Plans are designed to yield a target award in cash if the
Company achieves an agreed-upon profit over a one-year and three-year
performance cycle. An amount is accrued each year based upon the
amount by which the Company's profit for such year exceeds the target
performance. A new three-year performance cycle begins each year, such
that after the third year the annual amount paid to participants will
equal the target award if the Company's profit goals have been
achieved. Amounts provided under the New Incentive Plans aggregated
$1,998,000 in Transition 1993.
Net incentive compensation expense under all plans was $192,000,
$3,538,000 and $1,030,000 in Fiscal 1992, Fiscal 1993 and Transition
1993, respectively.
During Transition 1993, Triarc granted 50,000 restricted shares of
Triarc Class A common stock to the Company's chief executive officer
under Triarc's Amended and Restated 1993 Equity Participation Plan (the
"Triarc Equity Plan"). The value of the award at date of grant of
$900,000 is being accrued as compensation expense over the applicable
vesting period through December 31, 1996. In addition, during
Transition 1993 Triarc granted stock options to certain key employees
of the Company under the Triarc Equity Plan. Of such options, 65,000
were granted at an option price of $20.00 that was lower than the fair
market value of Triarc's Class A common stock at the date of grant of
$31.75. The aggregate difference of $764,000 between the option price
and the fair market value at the date of grant was recorded by Triarc
as unearned compensation and is being amortized to compensation expense
over the applicable vesting period through September 28, 1998.
Compensation expense resulting from the grants of restricted shares and
below market stock options aggregated $255,000 during Transition 1993
and is included in "General and administrative expenses".
(14) Significant Charges in Transition 1993
The accompanying consolidated statement of income includes the
following significant charges recorded in Transition 1993 (in
thousands):
<TABLE>
<S> <C>
Estimated cost allocated to the Company by Triarc
to terminate the lease on Triarc's existing corporate
headquarters $ 1,614
Costs allocated to the Company by Triarc related to a
five-year consulting agreement extending through
April 1998 between Triarc and the former Vice
Chairman of Triarc 229
-------
Total facilities relocation and corporate
restructuring costs (A) 1,843
Estimated cost allocated to the Company by Triarc for
compensation paid to the Triarc Special Committee of
the Board of Directors of Triarc 1,660
Income tax benefit relating to the above charges (1,179)
-------
$ 2,324
=======
<FN>
____________
(A) In Transition 1993, results of operations were significantly
impacted by facilities relocation and corporate restructuring charges
allocated to the Company by Triarc aggregating $1,843,000 consisting
of: (i) estimated allocated costs of $1,614,000 to relocate Triarc's
existing corporate headquarters and to terminate the lease on its
existing corporate facilities; (ii) total allocated costs of $229,000
relating to a five-year consulting agreement (the "Consulting
Agreement") extending through April 1998 between Triarc and Steven
Posner, the former Vice Chairman of Triarc. All of such charges are
related to the Change in Control of Triarc described in Note 2. In
connection with the Change in Control, Victor Posner and Steven Posner
resigned as officers and directors of Triarc. In order to induce
Steven Posner to resign, Triarc entered into the Consulting Agreement
with him. The allocated cost related to the Consulting Agreement was
recorded as a charge in Transition 1993 because the Consulting
Agreement does not require any substantial services and Triarc does not
expect to receive any services that will have substantial value. As a
part of the Change in Control, Triarc's Board of Directors was
reconstituted. The first meeting of Triarc's reconstituted Board of
Directors was held on April 24, 1993. At that meeting, based on a
report and recommendations from a management consulting firm that had
conducted an extensive review of Triarc and subsidiaries operations and
management structure, Triarc's Board of Directors approved a plan of
decentralization and restructuring which entailed, among other things,
the following features: (i) the strategic decision to manage Triarc in
the future on a decentralized rather than on a centralized basis; (ii)
the hiring of new executive officers for Triarc; (iii) the termination
of a significant number of employees as a result of both the new
management philosophy and the hiring of an almost entirely new
management team; and (iv) the relocation of the Triarc and certain
affiliates corporate headquarters. The Company's allocated costs to
relocate the corporate headquarters of Triarc and terminate the lease
on Triarc's existing corporate facilities($1,614,000) stemmed from the
decentralization and resturcturing plan formally adopted at the April
24, 1993 meeting of Triarc's reconstituted Board of Directors and
accordingly, were recorded in Transition 1993.
(B) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed directors,
were appointed in 1991 to serve on a special committee (the "Triarc
Special Committee") of Triarc's Board of Directors. Such committee was
empowered to review and pass on transactions between Triarc and Victor
Posner, the then largest shareholder of Triarc, and his affiliates.
The Company has been charged $1,660,000 as an allocation of the cash
portion of a success fee payable to the Triarc Special Committee
attributable to the Reorganization which occurred in connection with
the Change in Control. Such amount has been provided in "General and
administrative expenses" in the accompanying consolidated statement of
income for Transition 1993.
</TABLE>
(15) Fair Value of Financial Instruments
The estimated fair value of applicable financial instruments and
related underlying assumptions are as follows as of January 2, 1994:
Note receivable from Triarc - The carrying amount of $70,446,000
approximates fair value based upon scheduled cash flows discounted at
an estimated current market rate of interest.
Long-term debt - The Company estimates that the carrying value of
$163,123,000 approximates the fair value of debt at January 2, 1994
based upon the floating rate of interest applicable to the Graniteville
Credit Facility and the recent origination of such debt.
(16) Prior Year Comparable Period
The Company changed its year end effective January 2, 1994, as
previously disclosed. The following unaudited operating results for
the ten months ended December 27, 1992 are presented for comparative
purposes (in thousands):
<TABLE>
<S> <C>
Operating revenues $ 407,806
Operating profit $ 39,177
Provision for income taxes $ 11,941
Income before cumulative
effect of accounting
changes $ 19,750
Net income $ 6,714
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule V
GRANITEVILLE COMPANY AND SUBSIDIARIES
PROPERTIES
(In thousands)
<CAPTION>
Balance at Balance
beginning Additions Retirements at end
Classification of period at cost or sales Other (1) of period
-------------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Ten months ended January 2,
1994
Land $ 4,358 $ - $ - $ - $ 4,358
Buildings and improvements 25,717 9,959 (53) (540) 35,083
Machinery and equipment 125,325 13,106 (3,993) 190 134,628
Automotive and
transportation equipment 4,787 378 (258) (39) 4,868
-------- -------- --------- -------- --------
$160,187 $ 23,443 $ (4,304) $ (389) $178,937
======== ======== ========= ======== ========
Year ended February 28, 1993
Land $ 3,584 $ - $ - $ 774 $ 4,358
Buildings and improvements 18,032 3,940 - 3,745 25,717
Machinery and equipment 120,394 5,417 (6,439) 5,953 125,325
Automotive and
transportation equipment 4,229 718 (160) - 4,787
-------- -------- --------- -------- --------
$146,239 $ 10,075 $ (6,599) $ 10,472 $160,187
======== ======== ========= ======== ========
Year ended March 1, 1992
Land $ 3,584 $ - $ - $ - $ 3,584
Buildings and improvements 18,093 1,280 - (1,341) 18,032
Machinery and equipment 118,533 9,925 (1,957) (6,107) 120,394
Automotive and
transportation equipment 4,477 194 (416) (26) 4,229
-------- -------- --------- -------- --------
$144,687 $ 11,399 $ (2,373) $ (7,474) $146,239
======== ======== ========= ======== ========
<FN>
(1) Entries to "Other" column for all periods represent asset transactions
related to restructuring and for the year ended February 28, 1993 include
the purchase accounting effect of adopting Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, in the amount of
$9,675,000.
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule VI
GRANITEVILLE COMPANY AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTIES
(In thousands)
<CAPTION>
Additions
charged
Balance at to costs Reductions Balance
beginning and retirements at end
Period ended of period expenses or sales Other (1) of period
------------ ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Ten months ended
January 2, 1994 $ 54,715 $ 11,067 $ (4,224) $ (571) $ 60,987
======== ======== ========= ======== ========
Year ended
February 28, 1993 $ 44,120 $ 10,327 $ (6,020) $ 6,288 $ 54,715
======== ======== ========= ======= =========
Year ended
March 1, 1992 $ 41,880 $ 9,807 $ (2,084) $(5,483) $ 44,120
======== ======== ========= ======= =========
<FN>
(1) Entries to "Other" column for all periods represent asset transactions
related to restructuring and for the year ended February 28, 1993 include
the purchase accounting effect of adopting Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, in the amount of
$6,039,000.
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule VIII
GRANITEVILLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Charged
Balance at to costs Charged Deductions Balance
beginning and to other from at end
Description of period expenses accounts(1) reserves of period
----------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Ten months ended
January 2, 1994
Allowance for
doubtful accounts $ 3,715 $ 999 $ 85 $ (337) $ 4,462
======= ======= ======= ========= ========
Year ended
February 28, 1993
Allowance for
doubtful accounts $ 3,792 $ 1,421 $ 75 $ (1,573) $ 3,715
======== ======= ======= ========= =======
Year ended
March 1, 1992
Allowance for
doubtful accounts $ 3,956 $ 160 $ 108 $ (432) $ 3,792
======== ======= ======= ========= ========
<FN>
(1) Recoveries of bad debts
</TABLE>
PAGE
<PAGE>
<TABLE>
Schedule IX
GRANITEVILLE COMPANY AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(In thousands)
<CAPTION>
Maximum Average Weighted
Weighted amount amount average
Balance at average outstanding outstanding interest
Category of beginning interest during the during the rate during
short-term borrowing of period rate period period (1) the period(1)
-------------------- ---------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Ten months ended
January 2, 1994
NOT APPLICABLE
Year ended
February 28, 1993
Accounts receivable
financing $ -- -- % $ 1,959 $ 163 8.0%
========= ==== ======= ======= ====
Year ended
March 1, 1992
Accounts receivable
financing $ 1,959 8.0% $ 6,258 $ 2,003 9.8%
========= ==== ======= ======= ====
<FN>
(1) The average amount outstanding during the year was computed on a weighted
average basis. The weighted average interest rate was computed by
expressing interest expense applicable to these notes as a percentage of
the weighted average outstanding notes payable.
</TABLE>
<PAGE>
