SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ------------ TO ------------
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.)
2001 N.W. 107th Avenue
Miami, Florida 33172
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (305) 593-6565
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
11 7/8% Senior Subordinated Pacific Stock Exchange
Debentures 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. [ ]
As of March 31, 1995, all of the voting stock of the registrant (consisting
of 1,000 shares of common stock, $1.00 par value), was held by the
registrant's parent, Triarc Companies, Inc., through a wholly-owned
subsidiary.
<PAGE>
PART I
Item 1. Business.
INTRODUCTION
Southeastern Public Service Company ("SEPSCO" or the "Company"),
through its subsidiary, Public Gas Company, is currently primarily engaged in
the liquefied petroleum gas business. In addition, SEPSCO also currently
holds equity interests in several subsidiaries of Triarc Companies, Inc.
("Triarc"), a public corporation formerly known as DWG Corporation which,
through a wholly-owned subsidiary, owns 100% of SEPSCO's voting securities.
See "Item 1. Business -- Introduction -- Other Investments" below.
As a result of SEPSCO's merger (the "Merger") with a wholly-owned
subsidiary of Triarc, which Merger was consummated on April 14, 1994, (i) all
of SEPSCO's voting securities are now owned by a wholly-owned subsidiary of
Triarc and (ii) SEPSCO's common stock was delisted from the Pacific Stock
Exchange, the principal market for such stock ("PSE") until the Merger, and
the registration of such stock under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), was 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 -- Triarc" below.
SEPSCO was incorporated in Delaware in 1947. SEPSCO's principal
executive offices are located at 2001 N.W. 107th Avenue, Miami, Florida
33172, and its telephone number is (305) 593-6565. Reference herein to the
Company includes collectively SEPSCO and its subsidiaries, unless the context
indicates otherwise.
Other Investments
In addition to its primary business, SEPSCO also holds equity interests
in several Triarc subsidiaries, including a 50% interest in the parent
corporation of Graniteville Company ("Graniteville"). Graniteville
manufactures, dyes and finishes cotton, synthetic and blended apparel
fabrics. In addition to its interest in Graniteville, SEPSCO also owns 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 slow-roasted meat 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
SEPSCO's operating businesses and assets, other than SEPSCO's equity
interests in other Triarc subsidiaries. Such operating businesses and assets
included a utilities and municipal services business segment (consisting of a
tree maintenance business and construction-related operations), a
refrigeration business segment (consisting of an ice manufacturing and
distribution business and a cold storage business), a natural gas and oil
business (conducted through two subsidiaries of SEPSCO) and the liquefied
petroleum gas business. The actions contemplated by the July Resolution are
referred to herein as the "Discontinued Operations Plan." See "Item 1.
Business -- Introduction -- Discontinued Operations" below.
Discontinued Operations
In October 1993, pursuant to the Discontinued Operations Plan, SEPSCO
sold the assets of its tree maintenance services operations and the stock of
its two construction-related operations, which 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, excluding certain real
estate assets associated therewith (the "Ice Business"), for $5.0 million in
cash, approximately $4.3 million in the form of a subordinated secured note
of the buyer 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. In June 1994, SEPSCO sold to two unaffiliated
parties two of its cold storage plants with a net book value of approximately
$1.9 million for $475,000 in cash and $700,000 in the form of a promissory
note from the buyer. In addition, at various dates throughout Fiscal 1994,
SEPSCO sold to unaffiliated parties an aggregate of 11 idle properties with
an aggregate book value of $236,000 for an aggregate cash purchase price of
$535,000. In August 1994, a SEPSCO subsidiary sold substantially all of the
operating assets of its natural gas and oil business for $16.25 million in
cash, net of $750,000 held in escrow to cover certain indemnities given to
the buyer by this SEPSCO subsidiary. In December 1994, SEPSCO sold
substantially all of the remaining assets of its cold storage operations of
its refrigeration business segment to National Cold Storage, Inc. ("NCS"), a
newly-formed corporation controlled by Gilbert L. Bieger, Jr. and Marco A.
Rojas, each a former member of SEPSCO's management, for $6.5 million in cash,
a $3 million note and the assumption by the buyer of up to $2.75 million of
certain liabilities. In February 1995, SEPSCO sold to a former member of its
management team the stock of Houston Oil & Gas Company, Inc., a subsidiary
which was engaged in the natural gas and oil business ("HOG"), for an
aggregate purchase price of $800,000, consisting of $729,500 in cash, a
waiver of certain bonuses payable by SEPSCO to such former management member
and a six month promissory note in the original principal amount of $48,000.
The sale of the stock of HOG substantially completed the Discontinued
Operations Plan. Triarc has agreed with the lenders for National Propane
Corporation, a wholly-owned subsidiary of Triarc ("National Propane"), to
cause the merger of Public Gas and National Propane during the second quarter
of 1995. It is expected that Public Gas would become a wholly-owned
subsidiary of SEPSCO prior to such merger. In connection therewith, Triarc
has informed SEPSCO that Triarc presently intends to cause SEPSCO to redeem
its outstanding 11-7/8% Senior Subordinated Debentures due February 1, 1998
(the "Debentures") during 1995.
Having substantially completed the Discontinued Operations Plan, SEPSCO
entered into a Management Services Agreement ("MSA") in March, 1995 with
Management Providers, Inc., a newly-formed corporation controlled by Gilbert
L. Bieger, Jr. and Marco A. Rojas (the "Management Service Provider"),
pursuant to which the Management Service Provider is supervising the winding
down and the liquidation of all of SEPSCO's remaining assets. For additional
information regarding actions taken pursuant to the July Resolution and the
MSA, see "Item 1. Business -- General -- Discontinued Operations" below.
Triarc
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, including SEPSCO. 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. Triarc's 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
Effective with the ten-month transition period ended December 31, 1993
("Transition 1993"), Triarc and each of its subsidiaries that did not then
have a December 31 fiscal year end (including SEPSCO) changed its fiscal year
end to December 31 of each year. Accordingly, references in this Form 10-K
to a year prior to 1994 preceded by the word "Fiscal" refer to the twelve
months ended February 28 or 29 of such year, all references to a year
commencing with 1994 preceded by the word "Fiscal" refer to the twelve months
ended December 31 of such year, and all references to "Transition 1993" refer
to the ten month transition period from March 1, 1993 through December 31,
1993. See Note 2 to Consolidated Financial Statements of Southeastern Public
Service Company and Subsidiaries (the "Consolidated Financial Statements")
included in "Item 8. Financial Statements and Supplementary Data".
BUSINESS OVERVIEW
As a result of the actions taken by the Board of Directors of SEPSCO
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 and its
investments in several Triarc subsidiaries have been reclassified as
discontinued operations, and SEPSCO's consolidated financial statements have
been restated to reflect such reclassification. See Note 4 to the
Consolidated Financial Statements included in "Item 8. Financial Statements
and Supplementary Data".
Set forth below is a brief description of SEPSCO's liquefied petroleum
gas business which SEPSCO continues to operate pending the transfer, sale or
discontinuance thereof, as well as a brief description of SEPSCO's other
investments.
LIQUEFIED PETROLEUM GAS BUSINESS
SEPSCO, through Public Gas Company ("Public Gas"), a 99.7% owned-
subsidiary of SEPSCO, 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. As of December 31,
1994, the business was conducted by approximately 23 operating units located
within the state of Florida.
Business Strategy
Prior to the Reorganization, Public Gas was operating as a stand alone
company. In April 1993, the management of Public Gas was assumed by National
Propane, with a new management team. This management team is committed to
implementing the following strategy intended to increase revenues and improve
operating margins:
* Streamlining of Operations: Since the Reorganization, Public Gas'
work force has been reduced by approximately 20%. As a result,
operating expenses decreased in calendar 1994.
* Improved Pricing Management: To better monitor prices, in 1994
National Propane installed a centralized pricing and billing
system in all of their offices and in the offices of Public Gas
which will enable management to set and monitor prices from
headquarters. This system permits the monitoring of supply,
demand and competitive pricing information on a system-wide
basis.
* Improved Marketing: Public Gas and National Propane intend to
differentiate themselves from many smaller, local competitors by
establishing an image as a large, reliable fuel supplier on which
customers can depend. All of the businesses operate under the
National Propane brand and operating management is implementing
coordinated advertising and marketing campaigns. Effective
January 1, 1995, Public Gas entered into a License Agreement with
National Propane permitting Public Gas to use the trademarks,
service marks, and the trade names "National Propane Corporation"
and "National, the Nation's Propane Company" and the "Green
Fuels" logos.
* Efficient Purchasing: Due to capital constraints and the lack of
centralized purchasing, Public Gas historically has not taken
advantage of existing storage capacity. When conditions are
appropriate, management intends to purchase and store LP gas
supplies during the summer months when market pricing is
distressed, and sell these supplies during times of higher gas
prices. In addition, Public Gas Company historically purchased LP
gas independently. National Propane's management centralized
purchasing and hired an experienced senior executive to manage
all LP gas purchasing activities.
* Acquisitions: To complement the strategies outlined above, Public
Gas intends to increase revenues by acquiring smaller, less
efficient competitors and incorporating them into Public Gas'
existing network.
Industry
LP gas is a clean burning fuel produced by extraction from natural gas
or by separation from crude oil and crude oil products. In recent years,
industry sales of LP gas have not grown, primarily due to the economic
downturn and energy conservation trends, which have negatively impacted the
demand for energy by both residential and commercial customers. However, LP
gas, relative to other forms of energy, is gaining increased recognition as
an environmentally superior, safe, convenient, efficient and easy to use
energy source in many applications.
Markets; Customers
LP gas is sold primarily in suburban and rural areas which do not have
access to natural gas. In the residential market, LP gas is used in LP gas
appliances and heaters in a manner similar to natural gas, primarily for home
heating, water heating and cooking (indoor and outdoor). In the agricultural
market, LP gas is used primarily for motor fuel, chicken brooders and crop
drying. In the commercial market, LP gas is used primarily by restaurants,
fast foods franchises, shopping centers and other retail or service
establishments. In the industrial market, LP gas is used primarily as a fuel
for fork lift trucks and delivery trucks, heat-treating and other industrial
applications.
During Fiscal 1993, Transition 1993 and Fiscal 1994, approximately 28%,
24% and 26%, respectively, of sales by Public Gas were to residential
customers and approximately 72%, 76% and 74%, respectively, of such sales
were to commercial, agricultural and industrial customers. In Fiscal 1993,
Transition 1993 and Fiscal 1994, no single customer accounted for more than
10% of Public Gas combined operating revenues.
Products And Services
LP gas is sold and distributed in bulk or in portable cylinders,
through company-owned retail outlets and distributors. Most of Public Gas'
volume, in terms of dollars and gallons, is distributed in bulk, while
approximately 5% of their customers are served using interchangeable portable
cylinders. For customers served using cylinders, normally two LP gas
cylinders of 100 pound capacity (23.5 gallons each) are installed on the
customer's premises along with necessary regulating and protective equipment.
Regular bulk deliveries of LP gas are made to customers whose consumption is
sufficiently high to warrant this type of service. For such customers, tanks
(usually having a capacity of 50 to 1,000 gallons) are installed at the
customers' premises and the LP gas is stored in the tanks under pressure and
piped into the premises.
Public Gas' combined sales by cylinder and bulk service for the last
two fiscal years, Transition 1993 and Fiscal 1994 are as follows:
Combined Total
(gallons in thousands)
Fiscal 1992...................................... 22,538
Fiscal 1993...................................... 22,624
Transition 1993.................................. 17,892
Fiscal 1994...................................... 21,102
Year-to-year demand for LP gas is affected by the relative severity of the
winter and other climatic conditions.
Public Gas also provides specialized equipment for the use of LP gas. In
the residential market, Public Gas sells household appliances such as cooking
ranges, water heaters, space heaters, central furnaces and clothes dryers. In
the industrial market, Public Gas sells or leases specialized equipment for
the use of LP gas as fork lift truck fuel, in metal cutting and atmospheric
furnaces and for portable heating for construction. In the agricultural
market, specialized equipment is leased or sold for the use of LP gas as
engine fuel and for chicken brooding and crop drying.
Supply
The profitability of Public Gas is dependent upon the price and
availability of LP gas as well as seasonal and climatic factors. Contracts
for LP gas are typically made on a year-to-year basis, but the price of the
LP gas to be delivered depends upon market conditions at the time of
delivery. By utilizing its ability to store LP gas, management believes that
Public Gas should be able to lower their annual cost of goods sold by
maximizing supplies purchased during the low season and minimizing purchases
during times of seasonally high prices. Public Gas is not party to any
contracts to purchase LP gas containing "take or pay" provisions. Certain
contracts do, however, specify certain minimum and maximum amounts of LP gas
to be purchased. Public Gas purchases LP gas from numerous suppliers. Public
Gas has experienced conditions of limited supply availability from time to
time but have generally been able to secure sufficient LP gas to meet their
customers' needs. The primary sources of supply of LP gas are major oil
companies and independent producers of both gas liquids and oil. Worldwide
availability of both gas liquids and oil affects the supply of LP gas in
domestic markets, and from time to time the ability to obtain LP gas at
attractive prices may be limited as a result of market conditions, thus
affecting price levels to all distributors of LP gas.
Additional information regarding National Propane is contained in Triarc's
Annual Report on Form 10-K For the Fiscal Year Ended December 31, 1994
("Triarc's 10-K").
OTHER INVESTMENTS
Graniteville
SEPSCO owns 50% of the outstanding common stock of the parent corporation
of Graniteville, the remaining 50% 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 "Item 1.
Business -- Business Segments -- Textiles (Graniteville)" in Triarc's 10-K.
As a result of the discontinuance of substantially all of SEPSCO's other
businesses, SEPSCO's investment in Graniteville constitutes 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".
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 ("RCAC"), 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, KICK, and, as of January 1995, C&C
Cola, mixers and flavor lines. 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 cola concentrate to Cott Corporation, which sells private label soft
drinks to major retailers in the United States, Canada, the United Kingdom,
Australia, Japan, Spain and South Africa. Arby's is the world's largest
franchise restaurant system specializing in slow-roasted meat sandwiches with
an estimated market share in Fiscal 1994 of 58.8% of the roast beef sandwich
segment of the quick-service restaurant category. In addition, SEPSCO
believes that Arby's is the 15th largest restaurant chain in the United
States, based on domestic system-wide sales. System-wide sales were
approximately $1.8 billion in Fiscal 1994. Arby's acts both as a franchisor
and as an owner and operator in a system that included 2,788 restaurants as
of December 31, 1994, of which 288 were company-owned. A more detailed
description of the business of Royal Crown and Arby's is contained in "Item
1. Business -- Business Segments -- Soft Drinks (RC Cola)" and "Item 1.
Business -- Business Segments -- Fast Food (Arby's)", respectively, in
Triarc's 10-K.
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 in the past 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. Further information regarding Chesapeake
Insurance is contained in "Item 1. Business -- Discontinued and Other
Operations" in Triarc's 10-K.
GENERAL
Discontinued Operations
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 (the "PPM Sale") by SEPSCO
to Perkerson, Patton Management Corp. and its affiliates (collectively "PPM")
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. ("Pressure Concrete"), through which
SEPSCO conducted its concrete refurbishment business. These corporations
were sold to PPM for a nominal amount subject to the adjustments described
below. PPM had 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 $2,635,000 had been received as of December 31, 1994)
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, 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.
In March 1995, SEPSCO entered into a Final Settlement Agreement (the
"Final Settlement Agreement") with PPM, pursuant to which SEPSCO and PPM
agreed upon the amounts remaining to be paid to SEPSCO under, and other
obligations with respect to, the PPM Sale, and released each other from all
obligations thereunder. Pursuant to the Final Settlement Agreement, certain
subsidiaries of PPM will pay an aggregate of $500,000 to SEPSCO in five equal
quarterly installments, commencing with June 1, 1995. Pursuant to the Final
Settlement Agreement, a subsidiary of PPM will reimburse SEPSCO for certain
outstanding workers' compensation claims of approximately $95,000. The terms
of the PPM Sale and the Final Settlement Agreement were the result of arms-
length negotiations between SEPSCO and PPM, which is not an affiliate of
SEPSCO.
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. In April 1994, SEPSCO
entered into a Final Settlement Agreement with Asplundh regarding such
certain liabilities in excess of the $5.0 million assumed by Asplundh.
Pursuant to the Final Settlement Agreement, SEPSCO paid Asplundh a total of
$1.6 million, consisting of $1.2 million in cash and a transfer of a real
estate valued at $0.4 million. The terms of this transaction were the result
of arms'-length negotiations between SEPSCO and Asplundh. Asplundh is not an
affiliate of SEPSCO.
In April 1994, SEPSCO sold the Ice Business to Southwestern for $5.0
million in cash, a promissory note of Southwestern in the principal amount of
$4,295,000 (the "Southwestern Ice Note") and the assumption by Southwestern
of certain current liabilities of $1,162,000. The note, which bears no
interest during the first year and an annual interest rate of 5% thereafter,
is payable in annual installments of $120,000 in 1995 through 1998, with the
remaining balance of $3,815,000 due in 1999. 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. For
additional information, see "Environmental Matters" below. The terms of the
Ice Sale were the result of arms'-length negotiations between SEPSCO and
Southwestern, which is not an affiliate of SEPSCO.
In June 1994, SEPSCO sold to two unaffiliated parties two of its cold
storage plants with a net book value of $1,888,000 for $475,000 in cash and
$700,000 in the form of a promissory note from the buyer. In addition, at
various dates throughout Fiscal 1994, SEPSCO sold to unaffiliated parties an
aggregate of 11 idle properties with an aggregate book value of $236,000 for
an aggregate cash purchase price of $535,000.
In August 1994, Southeastern Gas Company, a subsidiary of SEPSCO
("Southeastern"), sold substantially all of the operating assets of SEPSCO's
natural gas and oil business other than HOG to Eastern States Oil & Gas, Inc.
("Eastern"), for cash of $16.25 million, net of $750,000 held in escrow (the
"Escrow Amount") for a period of two years to cover certain indemnities given
to Eastern by Southeastern. The effective date of this sale was July 1,
1994. In March 1995, Eastern paid SEPSCO an additional amount of
approximately $84,000 as a post-closing adjustment giving effect to the
production and expenses from July 1, 1994 until August 31, 1994 (the closing
date of the sale). The terms of the natural gas and oil business sale were
the result of arms'-length negotiations between SEPSCO and Eastern, which is
not an affiliate of SEPSCO.
In December 1994, SEPSCO sold substantially all of the remaining assets of
its cold storage operations to NCS for $6.5 million in cash, $3 million in
the form of a promissory note from NCS and the assumption by NCS of up to
$2.75 million of certain liabilities. The promissory note which, bears no
interest during the first year and an annual interest rate of 8% thereafter,
is payable in a single payment on December 20, 2000. SEPSCO's management
believes that the terms of the sale of the cold storage operations to NCS
were at least as favorable to SEPSCO as those available from third parties
that were unaffiliated with NCS.
In February, 1995, SEPSCO sold to a former member of its management team
the stock of HOG for an aggregate purchase price of $800,000, consisting of
$729,500 in cash, a waiver of certain bonuses payable by SEPSCO to such
management member and a six month promissory note in the original principal
amount of $48,000. SEPSCO's management believes that the terms of the sale
of the stock of HOG were at least as favorable to SEPSCO as those available
from third parties that were unaffiliated with the purchaser of HOG. The
sale of the stock of HOG substantially completed the actions contemplated by
the July Resolution.
Triarc has agreed with National Propane's lenders to cause the merger of
Public Gas and National Propane during the second quarter of 1995. It is
expected that Public Gas would become a wholly-owned subsidiary of SEPSCO
prior to such merger. In connection therewith, Triarc has informed SEPSCO
that Triarc presently intends to cause SEPSCO to redeem its outstanding
Debentures during 1995.
Having completed the sale and/or liquidation of all of its operating
businesses other than LP gas and its investments in several Triarc
subsidiaries, SEPSCO entered into the MSA in March 1995, pursuant to which
the Management Service Provider, is supervising the winding down and the
liquidation of all of SEPSCO's remaining assets. Pursuant to the MSA, the
Management Service Provider will supervise and manage the remaining SEPSCO
employees in performing certain accounting, tax and administrative functions
as well as supervise certain environmental matters (described below) and
conduct the sales of remaining SEPSCO assets, such as idle properties. The
term of the MSA expires on December 31, 1995. SEPSCO is providing use of a
portion of SEPSCO's office space in Miami, Florida as compensation to the
Management Service Provider for its services under the MSA.
Environmental Matters
As a result of certain environmental audits in 1991 at the Company's ice
manufacturing facilities of the refrigeration segment, the Company became
aware of possible contamination by hydrocarbons and metals at certain sites.
The Company has filed appropriate notifications with state environmental
authorities and has begun testing and subsequently remediating such sites.
Remediation varied from site to site, ranging from testing of soil and
groundwater for contamination, removal of certain underground storage and
other tanks to the removal of contaminated soils at certain locations and the
remediation of contaminated groundwater at one site.
As part of the on-going testing and remediation resulting from the 1991
environmental audits and because the Company's ice manufacturing business was
being sold, additional environmental testing was performed during 1994 on the
ice properties. As a result of these additional environmental audits, it was
determined that certain remediation, primarily removing hydrocarbons in soils
and hydrocarbons in the groundwater caused by underground storage tanks and
removing elevated metals in the soil, was required on thirteen ice
manufacturing properties. The Company has filed appropriate notifications
with state environmental authorities. The remediation process, including
more definite testing on certain properties, continued during 1994 on the
properties located in Phoenix, Arizona; Tucson, Arizona; Willcox, Arizona; El
Centro, California; Marathon, Florida; Miami, Florida; Albuquerque, New
Mexico and Memphis, Tennessee. During 1994, approximately $1,005,000 (net of
a $272,000 reimbursed by Southwestern Ice) has been spent on remediation at
these ice manufacturing properties, with an estimated future remediation
expenditure after December 31, 1994 of $1,845,000, of which $728,000 will be
reimbursed by Southwestern Ice. As part of the sale of the ice business,
Southwestern Ice agreed to reimburse the Company for the first and third
$500,000 (or a total of $1 million) of remediation expenditures.
Additionally, Southwestern Ice agreed to pay for the second $500,000 of
remediation, which is the responsibility of the Company, however,
Southwestern Ice would receive the benefit from a dollar for dollar reduction
in the Southwestern Ice Note. Southwestern Ice is current in payments of
amounts owed to the Company.
Environmental audits were also performed in 1994 on each of the cold
storage properties of the refrigeration segment in conjunction with the sale
of this business to NCS. As a result of these audits, certain remediation,
primarily removing hydrocarbons in soil and hydrocarbons in the groundwater
related to underground petroleum storage tanks and removing certain asbestos
containing material from certain buildings, will be required at seven sites
at a total estimated cost of $1,339,000. The Company has filed appropriate
notifications with state environmental authorities, where necessary. As part
of the sale of the cold storage business, NCS agreed to pay the first
$1,250,000 of the required remediation expenditure. Remediation is expected
to commence on these properties in 1995. In a separate transaction, a cold
storage facility in Salt Lake City, Utah was sold during 1994, which required
$24,000 of environmental remediation for removal of accumulated hydrocarbons
in the building.
Additionally, the Company had various inactive properties, of which four
were remediated at an aggregate cost of $484,000 and sold during 1994. These
include Provo, Utah; Salt Lake City, Utah and two properties in Portland,
Oregon. It is expected that most of the remaining 22 inactive sites as of
December 31, 1994 will be sold in individual transactions. Environmental
audits are expected to be performed in conjunction with each sale, where
necessary. Environmental audits have been completed, or are in process, on 9
of the 22 remaining inactive properties. The remediation process, including
more definitive environmental testing, commenced during 1994 on properties in
Denver, Colorado; Willard, Ohio; Portland, Oregon; Uvalde, Texas;
Brownsville, Texas; San Benito, Texas; Harlingen, Texas; LaBlanca, Texas and
Belle Glade, Florida. Certain remediation of hydrocarbons in soils, asbestos
containing material (ACM) in certain buildings and elevated metals in soils
will be necessary on the other properties. Based on the remediation cost
estimates resulting from the environmental audits and management's
remediation estimates for the thirteen untested sites, it is expected that
future remediation costs on inactive properties will total approximately
$618,000.
The total future environmental remediation expenditures are estimated by
the Company as of December 31, 1994 to be approximately $3,782,000, of which
$1,978,000 is expected to be reimbursed to the Company by the purchasers of
the ice and cold storage businesses and $1,804,000 is expected to be paid by
the Company.
The Company charges against earnings for environmental audits and
remediation and payments thereof are as follows:
CHARGES TO PAYMENTS FOR REMAINING
YEAR EARNINGS COST INCURRED BALANCE
- -----------------------------------------------------------------------
(IN THOUSANDS)
FISCAL 1991 $1,300 $ --- $1,300
FISCAL 1992 200 (584) 916
FISCAL 1993 2,200 (258) 2,858
TRANSITION 1993 --- (421) 2,437
FISCAL 1994 900* (1,533) 1,804
- -------------
*INCLUDES $500 TRANSFERRED FROM NATURAL GAS AND OIL
SEPSCO believes that after giving effect to the above-described accruals,
payments and assumptions of liability, the ultimate outcome of these
environmental matters 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." Information concerning
certain environmental matters with respect to Graniteville is contained in
"Item 1. Business -- Environmental Matters" in Triarc's 10-K.
Although SEPSCO has not performed 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, as described above, SEPSCO currently does not anticipate
that present environmental regulations will materially affect the capital
expenditures, earnings or competitive position of SEPSCO, except for
expenditures for environmental remediation described above.
Competition
Public Gas competes with numerous other LP gas distributors, none of
which, including Public Gas, can be considered dominant in any particular
marketing area. The principal competitive factors affecting this industry are
price and service. In addition, LP gas is sold in competition with all other
commonly used fuels and energy sources, including electricity and natural
gas. The primary competing energy source to LP gas is electricity, which is
available in all of the market areas served by Public Gas. Currently, LP gas
is generally less expensive than electricity based on equivalent energy
value. Except for various industrial applications, no attempt has been made
to compete with natural gas which, with few exceptions, has been a less
expensive energy source than LP gas. Although competitive fuels may at times
be less costly for an equivalent energy value, historically LP gas has
competed successfully on the basis of cleanliness, convenience, safety,
availability and efficiency. In addition, the use of alternative fuels,
including LP gas, is mandated in certain specified areas of the United States
that do not meet federal air quality standards.
Working Capital
Working capital requirements for Public Gas fluctuate moderately due to
the seasonal nature of their businesses. Typically, in late summer and fall,
inventories are built up in anticipation of the heating season and are
depleted over the winter months. During the spring and early summer,
inventories are at low levels due to lower demand. Accounts receivable reach
their highest levels in the middle of the winter and are gradually reduced as
the volume of LP gas sold declines during the spring and summer. Working
capital requirements are generally met through cash flow from operations.
Accounts receivable of Public Gas are generally due within 30 days of
delivery.
The Company's overall 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.
Governing Regulations
Public Gas is subject to various Federal, state and local laws and
regulations governing the transportation, storage and distribution of LP gas,
and the health and safety of workers, primarily the Occupational Safety and
Health Act and the regulations promulgated thereunder.
Except as described herein, the Company is not aware of any pending
legislation that in its view is likely to affect significantly the operations
of the Company's subsidiaries. The Company believes that the operations of
its subsidiaries comply substantially with all applicable governmental rules
and regulations.
Seasonality
The LP gas segment is subject to the seasonal influences of weather and
tourism. Cool weather from December through April increases the demand for
LP gas at both the wholesale and retail levels and commercial volume
increases with the level of tourism in Florida.
Intellectual Property; Research and Development; Backlog
Patents, trademarks, licenses, franchises and concessions are not material
to SEPSCO's business. See "Business Strategy" above for a discussion of
certain license arrangements between Public Gas and National Propane. During
Fiscal 1993, Transition 1993 and Fiscal 1994, SEPSCO had no material
expenditures for research and development activities and no forward order
backlog.
Employees
As of December 31, 1994, Public Gas employed approximately 186 personnel,
including approximately 34 salaried personnel and approximately 152 hourly
personnel. Public Gas management believes that employee relations are
satisfactory. At December 31, 1994, approximately 39 of the total of Public
Gas employees were covered by various collective bargaining agreements
expiring from time to time from the present through 1997. In addition, as of
December 31, 1994, SEPSCO employed twenty-four employees, seventeen of whom
are salaried employees and seven of whom are hourly personnel; none of such
employees were covered by any collective bargaining agreements. In
connection with the completion of the Discontinued Operations Plan and the
entering into the MSA Agreement, the number of SEPSCO employees was reduced
to six in March, 1995.
Item 2. Properties.
Certain information about the materially important physical properties of
SEPSCO's LP gas operations as of December 31, 1994 is set forth in the
following table:
Sq. Ft. of
Business Facilities-Location Land Title Floor Space
Public Gas Office/Warehouse 20 owned 69,000
17 leased *
14 Storage Depots
23 Retail Depots
various locations
throughout Florida
Other Facilities
(inactive)
Refrigeration Ice mfg. and cold
storage 6 owned 112,000
Ice mfg. 13 owned 173,000
Public Gas Undeveloped land 3 owned N/A
- ------------------
* Public Gas facilities have approximately 2,597,000 gallons of storage
capacity.
The Company's management believes that the properties used in its
Public Gas operations, 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, 1994.
Item 3. Legal Proceedings.
In addition to the matters referred to or described under "Item 1.
Business -- General -- 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 results of
operations or consolidated financial condition.
Triarc, the Company's parent, is involved in claims, litigation, and
proceedings of various types. Information concerning such matters is
contained in "Item 3. Legal Proceedings" in Triarc's 10-K. The outcome of
such matters will not have a material adverse effect on the Company's
business or results of operations 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) SEPSCO's common stock was delisted from the PSE and the
registration of such stock under the 1934 Act was terminated.
No dividends were paid or declared on the SEPSCO's common stock in
Fiscal 1993, during the Transition 1993, in Fiscal 1994, or in the current
year to date.
Under the provisions of SEPSCO's 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,
1994 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 described above, SEPSCO has been
informed by Triarc that Triarc presently intends to cause SEPSCO to redeem
its Debentures during 1995.
As a result of the Merger, since April 14, 1994 all of the outstanding
shares of SEPSCO's voting securities has been held by a wholly-owned
subsidiary of Triarc.
<PAGE>
Item 6. Selected Financial Data (1)
<TABLE>
<CAPTION>
Ten months
ended
Fiscal Fiscal Fiscal December
1991 1992 1993 31, 1993 1994
------ ------ ------ -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 29,154 $ 29,220 $ 28,520 $ 23,394 $ 28,110
Operating profit 3,181 4,571 3,634 1,745 3,264
Income from continuing operations 4,245 6,332 12,572 2,030 7,960
Loss from discontinued operations,
net of income taxes (7,899) (225) (5,542) (23,355) --
Equity in extraordinary items
of affiliates 794 -- (348) -- --
Cumulative effect of changes in
accounting principles of:
Equity in affiliates -- -- (5,954) (102) --
The Company -- -- -- 7,617 --
Net income (loss) (2) (2,860) 6,107 728 (13,810) 7,960
Total assets 191,788 208,330 206,253 169,397 188,369
Long-term debt included in
continuing operations 64,005 56,457 49,223 50,258 567
Stockholders' equity (3) 85,010 107,503 108,230 94,419 120,642
<FN>
- ----------
(1) Selected Financial Data have been retroactively restated to reflect
the discontinuance of the Company's utilities and municipal services
refrigeration and natural gas and oil operations in the ten months
ended December 31, 1993.
(2) The Company has not paid any dividends on its common shares during
any of the periods presented.
(3) Stockholders' equity increased by (i) $15,210,000 in Fiscal 1992 as
a result of the reduction in equity ownership of an affiliate and
(ii) $18,489,000 in 1994 as a result of the Merger ($17,004,000)
(see Note 19 to the consolidated financial statements) and the
contribution from Triarc Companies, Inc. of 1% of its ownership in
Graniteville Company ($1,485,000). (See Note 9 to the consolidated
financial statements).
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the consolidated
financial statements included herein of Southeastern Public Service Company
(the "Company") and its subsidiaries.
On October 27, 1993 the Company's Board of Directors approved a change
in the fiscal year of the Company and its subsidiaries from a fiscal year
ending February 28 to a calendar year ending December 31, effective for the
transition period ended December 31, 1993. As used herein, "1994" refers to
the year ended December 31, 1994, "Transition 1993" refers to the ten months
ended December 31, 1993, "1993" refers to the twelve months ended December
31, 1993, "Comparable 1992" refers to the ten months ended December 31, 1992
and "Fiscal 1993" refers to the year ended February 28, 1993. The Company's
results of operations for 1994 are compared with 1993 and for Transition
1993 are compared with Comparable 1992 (see Note 2 to the consolidated
financial statements). The results for Fiscal 1993 were not separately
discussed since Fiscal 1993 includes substantially the same operations as
Comparable 1992 (which is compared with Transition 1993).
Results of Operations
Summarized unaudited condensed consolidated financial results for 1993
are as follows (in thousands):
Net sales $ 29,521
Operating profit 2,910
Interest expense (11,167)
Other income, net 15,793
Income from continuing
operations before income taxes 7,536
Provision for income taxes 783
Income from continuing operations 6,753
Loss from discontinued operations (28,243)
Equity in extraordinary charge of
affiliate (348)
Cumulative effect of changes in
accounting principles 7,515
Net loss (14,323)
1994 Compared with 1993 (Unaudited)
Net sales declined $1.4 million (5%) to $28.1 million in 1994 from $29.5
million in 1993 due to a $1.8 million reduction in liquefied petroleum gas
("LP Gas") volume partially offset by a $0.4 million increase in average
selling prices. The reduction in volume reflects the overall warmer weather
temperatures in 1994 compared with 1993. Average selling prices increased
despite lower product costs.
Operating profit in 1994 increased $0.4 million (14%) to $3.3 million in
1994 from $2.9 million in 1993 as a result of a $0.6 million decrease in
selling, general and administrative expenses offset by a $0.2 million
decrease in gross profit. Gross profit declined due to the aforementioned
decrease in sales volume partially offset by a higher gross margin resulting
from a decrease in the purchase price of LP Gas in an environment of higher
selling prices. Selling, general and administrative expenses decreased due
to (i) the absence in 1994 of a facilities relocation and corporate
restructuring charge of $0.8 million (see Note 18 to the consolidated
financial statements) relating to continuing operations in connection with a
Change in Control of the Company's parent, Triarc Companies, Inc.
("Triarc"), and the Company that occurred on April 23, 1993 (the "Change in
Control") and (ii) a $0.5 million decrease in salaries and other expenses
due to a reduction in personnel at the LP Gas business. Such decreases of
$1.3 million were partially offset by higher net management service charges
reflecting (i) a new management services charge from National Propane
Corporation ("National Propane"), a wholly-owned subsidiary of Triarc, for
services provided to the LP Gas business commencing in the second half of
1994 and (ii) an increase in the allocated portion of the Company's
corporate charges to continuing operations due to the sale of certain
discontinued operations during 1993 and 1994 without proportionate cost
decreases.
Interest expense decreased $3.0 million to $8.2 million in 1994 from
$11.2 million in 1993 reflecting lower debt outstanding during 1994 due to
the annual $9.0 sinking fund requirement on the 11 7/8% Senior Subordinated
Debentures due February 1, 1998 (the "Debentures") and debt repayments
principally in connection with the Change in Control.
Other income, net (excluding interest expense) decreased $2.9 million to
$12.9 million in 1994 from $15.8 million in 1993 reflecting (i) a $0.7
million increase in equity in earnings of affiliates before cumulative
effect of changes in accounting principles and extraordinary charge of
affiliates, (ii) a $1.2 million decrease in interest income from Triarc,
(iii) $2.1 million of interest income other than from Triarc in 1994, (iv)
a non-recurring $6.0 million gain on sale of a marketable security in 1993
and (v) a non-recurring write-off of $1.5 million of an investment in
Chesapeake Insurance Company Limited ("Chesapeake Insurance"), an indirect
subsidiary of Triarc, in 1993.
Equity in earnings of affiliates increased $0.7 million to $7.4 million
in 1994 from $6.7 million in 1993. Such amount was comprised of $7.5
million and $8.0 million for 1994 and 1993, respectively, of equity in
earnings from the Company's investment in Graniteville Company
("Graniteville") partially offset by $0.1 million and $1.3 million for 1994
and 1993, respectively, of equity in losses from the Company's investment in
CFC Holdings, Corp. ("CFC Holdings"). The results of Graniteville for 1994
were unfavorably impacted by (i) a reduction in sales volume for sportswear
due to weak demand including the effect of the denim market downturn which
continued until its turnaround in late 1994 (ii) a reduction in profit
margins principally resulting from the higher cost of cotton, one of
Graniteville's principal raw materials, which could not be fully passed on
to its customers and (iii) an increase in interest expense from higher
interest rates and higher average levels of debt, all partially offset by a
$2.5 million impact of a liquidation of LIFO inventory quantities carried at
lower costs from prior years.
Interest income from Triarc decreased $1.2 million to $3.5 million in
1994 from $4.7 million in 1993, due to a reduction in the receivable from
Triarc in connection with the Change in Control.
Interest income, other than from Triarc, amounted to $2.1 million in
1994 resulting from investments in marketable securities of proceeds from
the sales of certain discontinued operations during 1993 and 1994.
The Company realized a non-recurring $6.0 million previously deferred
gain on the sale of an investment in an unaffiliated company which had
previously been sold to Triarc for a note. In 1993, the note was collected
and the previously deferred gain was recognized.
The Company wrote off its $1.5 million investment in Chesapeake
Insurance in 1993 since such investment was 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.
There is no provision for income taxes for 1994 due to the release of
valuation allowances attributable to the utilization of net operating and
other loss and tax credit carryforwards.
The loss from discontinued operations of $28.2 million, net of tax
benefit, in 1993 consists of $14.3 million of loss from operations of
discontinued operations and $13.9 million provision for the estimated loss
on the disposal of the discontinued operations. The $14.3 million loss from
operations included (i) an $8.6 million net of tax benefit ($12.9 million
before taxes) write-down relating to the impairment of certain unprofitable
properties and accruals for environmental remediation and losses on certain
contracts in progress, (ii) a $2.6 million net of tax benefit ($3.9 million
before taxes) facilities relocation and corporate restructuring charge
relating to discontinued operations in connection with the Change in Control
and (iii) a $0.3 million net of tax benefit ($0.5 million before taxes)
allocation to the Company by Triarc for its portion of a payment to a
special committee of the Board of Directors of Triarc. The $13.9 million
provision for estimated loss, with no tax benefit, on the disposal of the
discontinued operations in 1993 resulted from the consummation of the sales
of the tree maintenance services operations and the construction related
operations and a letter of intent to sell (and subsequent sale of) the ice
operations. Such charge principally reflects (i) approximately $4.6 million
of losses from the sales of the operations comprising the former utility and
municipal services business segment, (ii) approximately $6.7 million of
losses from the sale of operations comprising the former refrigeration
business segment, (iii) approximately $2.5 million of estimated losses from
operations from July 22, 1993 to the actual or estimated disposal dates of
the discontinued operations and (iv) $0.1 million of other items.
The Company's equity in extraordinary charge in 1993 relates to CFC
Holdings and consisted of a charge during 1993 of $348,000 due to the early
extinguishment of debt.
The cumulative effect of changes in accounting principles in 1993
results from the Company and CFC Holdings adopting Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS
109") in 1993 ($7.6 million benefit and $0.1 million charge, respectively).
TRANSITION 1993 COMPARED WITH COMPARABLE 1992 (UNAUDITED)
Net sales increased from $22.4 million in Comparable 1992 to $23.4
million in 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 18 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 charge 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 on April
23, 1993, (iii) $1.2 million from the write-off of Graniteville's investment
in 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.
The Company wrote off its $1.5 million investment in Chesapeake
Insurance in 1993 as previously discussed.
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:
The $13.9 million charge for estimated losses on disposal of the
discontinued operations as discussed above.
The Company recorded an $8.0 million write-down relating to the
impairment of certain unprofitable properties in Transition 1993.
During Transition 1993 the Company was allocated by Triarc, as well as
directly incurring certain facilities relocation and corporate
restructuring charges totaling $4.7 million, of which $3.9 million was
allocated to discontinued operations (see Note 18 to the consolidated
financial statements for 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.
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.
Effective March 1, 1993, the Company changed its method of accounting
for income taxes when it adopted the provisions of 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. Effective March 1, 1992
Graniteville adopted SFAS 109 and SFAS 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) in Fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities, excluding
restricted cash, increased $1.4 million during 1994 to $35.0 million at
December 31, 1994. Such increase reflects proceeds from sales of assets or
stock of discontinued operations of $28.7 million substantially offset by
(i) scheduled repayments of long-term debt of $9.0 million, (ii) a $6.6
million loan to RC/Arby's Corporation ("RCAC"), an affiliate and a
subsidiary of Triarc, (iii) net cash used by operations of $5.9 million,
(iv) net cash used in discontinued operations of $2.6 million, (v) a
purchase of notes receivable from an affiliate of $1.2 million and (vi)
other items, net of $2.0 million.
Total stockholders' equity increased $26.3 million during 1994 to $120.6
million due to a $17.0 million contribution related to the April 1994
acquisition (discussed below) of the minority interest in the Company not
owned by Triarc, net income of $8.0 million and $1.5 million due to the
August 1994 contribution to the Company from its parent of 1% of the
outstanding common stock of Graniteville, an indirect wholly-owned
subsidiary of Triarc, offset slightly by unrealized losses on marketable
securities of $0.2 million. In connection with the settlement of certain
litigation, Triarc acquired the 28.9% minority interest in the Company it
did not already own for shares of Triarc's common stock valued at $52.1
million, net of $3.8 million of such stock value representing settlement
costs. Such acquisition was accounted for by the Company in accordance with
the "push-down" method of accounting. Of Triarc's $23.9 million excess of
acquisition cost of $52.1 million over the carrying value of the related
minority interest liability of $28.2 million, $17.0 million increased
Triarc's basis in the Company and such basis has been pushed down as a
contribution to stockholders' equity (see Note 19 to the accompanying
consolidated financial statements for further discussion).
At December 31, 1994 the Company had a receivable from Triarc of $27.8
million including a promissory note (the "Note") with a principal amount of
$26.5 million. The accrued and unpaid interest on the Note totaled $4.9
million at December 31, 1994, which has been partially offset by $3.6
million of amounts payable to Triarc for facilities relocation and corporate
restructuring and other charges. The Note bears interest at the annual rate
of 13% and is due on August 1, 1998. As further discussed below the Company
anticipates that Triarc will repay the Note during 1995 in connection with
transactions related to the intended merger of Public Gas Company ("Public
Gas"), a 99.7% owned subsidiary of the Company, with National Propane. If
such merger does not occur, the Company expects that to the extent it
realizes the interest on the Note from Triarc, such realization will be
through offsets of future amounts otherwise due Triarc and, therefore, such
interest will not provide cash flows to the Company. Should such offsets
not be adequate, the Company expects to be required to make loans to Triarc
approximating the amount of any cash interest received.
In September 1994 the Company received a demand promissory note from
Triarc. Loans under the demand promissory note bear interest at the prime
rate plus 1 1/4% payable in cash. As of December 31, 1994 the Company had
no loans outstanding under the demand promissory note; however, $3.5 million
was subsequently loaned to Triarc through March 31, 1995.
In August 1994 the Company entered into a credit arrangement with RCAC
and in accordance therewith received a promissory note maturing in September
1995 pursuant to which the Company may lend up to $9.5 million. Loans under
the promissory note bear interest at 11 7/8% per annum, payable quarterly in
cash. As of December 31, 1994, the Company had made loans under the
promissory note of $6.6 million. Subsequent to December 31, 1994 the
remaining balance under the $9.5 million promissory note was loaned to RCAC.
Under its present credit facility agreement, Graniteville is unable to
pay any dividends or make any loans or advances to its stockholders,
including the Company, prior to December 31, 1995, and Graniteville's
ability to do so thereafter will be limited. Accordingly, any current
income from the investment in Graniteville will not provide cash flows to
the Company in 1995.
The Company is required to make an annual $9.0 million sinking fund
payment on the Debentures and to pay interest on such Debentures semi-
annually on February 1 and August 1 of each year. On February 1, 1995 the
Company made its $9.0 million sinking fund payment together with interest of
$3.2 million. As further discussed below, the Company intends to repurchase
the remaining $45.0 million principal amount of the Debentures prior to
maturity in 1995.
The indenture pursuant to which the Debentures were issued contains a
provision which limits to $100.0 million the aggregate amount of specified
kinds of indebtedness that the Company and its consolidated subsidiaries can
incur. At December 31, 1994 such indebtedness was $51.6 million resulting
in allowable additional indebtedness, if the Company desired to make such
borrowings and if such financing could be obtained, of $48.4 million.
The Company has $6.0 million of restricted cash of which $5.25 million
supports letters of credit which collateralize certain performance and other
bonds relating to the former utility and municipal services segment and
$0.75 million represents funds held in escrow resulting from the sale of the
natural gas and oil business. The Company anticipates that the performance
secured by the bonds will be completed by the end of 1995, and that the
restricted cash will revert to the Company free of restrictions and be
available for general corporate purposes no later than 1996. The funds held
in escrow, net of charges thereto, revert to the Company in August 1995
($0.25 million) and August 1996 ($0.5 million).
The Federal income tax returns of the Company have been examined by
the Internal Revenue Service ("IRS") for the tax years 1986 through 1988.
The Company has resolved all but one issue related to such audit at no
significant cost to the Company. The Company is contesting the remaining
open issue at the Appellate Division of the IRS. The IRS is currently
examining the Company's Federal income tax returns for the tax years from
1989 through 1992 and has proposed certain adjustments, some of which will
be contested by the Company. The amount and timing of any payments required
as a result of (i) the remaining open issue from the 1986 through 1988
examination and (ii) the 1989 through 1992 examination cannot be determined.
However, the Company believes that adequate aggregate provisions have been
made in years prior to 1994 for any tax liabilities, including interest,
that may result from such examinations and other tax matters.
On July 22, 1993 the Company'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.
In 1993 the Company sold the assets of the tree maintenance services
operations and the stock of the construction related operations (subject to
certain contingent payments to the Company), both comprising the former
utility and municipal services business segment. In March 1995 the Company
agreed to settle any further amounts due under such contingent payments
related to the construction related operations. Such settlement provides
for aggregate payments of $0.5 million to be received in quarterly
installments of $0.1 million each commencing June 1, 1995, together with
interest at 8 1/2% on the remaining outstanding balance, plus 75% of the
proceeds of one property of the former construction related operations held
for sale by the purchaser or, if not sold by December 31, 1996, $0.3 million
or the return of the property to the Company. On April 8, 1994 the Company
sold substantially all of the operating assets of the ice operations of the
Company's refrigeration business segment for $5.0 million in cash, a $4.3
million note (discounted value $3.3 million -the benefit of which has not
been recorded) and the assumption by the buyer of certain current
liabilities of $1.2 million. The note, which bears no interest during the
first year and 5% thereafter, is payable in annual installments of $120.0
thousand in 1995 through 1998 with the balance of $3.8 million due in 1999.
On August 31, 1994 a subsidiary of the Company sold substantially all of the
operating assets of the natural gas and oil business for cash of $16.25
million, net of $0.75 million held in escrow to cover certain indemnities
given to the buyer by the Company. In February 1995 the Company sold the
remaining natural gas and oil assets for cash of $0.7 million before
insignificant adjustments. On December 20, 1994 the Company sold either the
stock or operating assets of the companies comprising the cold storage
operations of the Company's refrigeration business segment to National Cold
Storage, Inc. ("NCS") a company formed by two former officers of the Company
for cash of $6.5 million, a $3.0 million note (discounted value $2.5 million
- - the benefit of which has not been recorded) and the assumption by the
buyer of certain liabilities of $2.75 million. In addition, the Company
sold certain cold storage properties to several buyers for aggregate cash
proceeds of $1.0 million and a note for $0.7 million. The note from NCS
bears no interest during the first year and 8% thereafter payable at
maturity, does not amortize and is due in full in December 2000.
As of December 31, 1994 the Company has completed the sale of
substantially all of its discontinued operations but there remains certain
liabilities to be liquidated (the estimates of which have been accrued) as
well as certain contingent assets (principally the two notes from the sale
of the refrigeration business) which may be collected, the benefits of
which, however, have not been recorded. (See Note 4 to the accompanying
consolidated financial statements for further discussion).
In addition, on July 22, 1993 the Company's Board of Directors
authorized the sale or liquidation of the LP Gas business, consisting of the
Company's subsidiary, Public Gas. On March 31, 1995 Public Gas entered into
a letter of intent with National Propane whereby Public Gas will be merged
with and into National Propane during the second quarter of 1995. In
consideration thereof, the Company will receive a proportionate number of
shares of common stock of the surviving corporation based upon the relative
fair values of Public Gas and National Propane.
In connection with such merger the Company intends to repurchase the
Debentures ($45.0 million principal amount as of February 28, 1995) prior to
maturity during 1995. The Company anticipates financing such repurchase
with collection of the Note due from Triarc ($26.5 million), the Company's
available cash and marketable securities ($21.1 million at February 28,
1995) and the remainder, if any, with advances from Triarc. Although the
Company is informed that it is Triarc's intention to repay the Note, there
can be no assurance that Triarc will be able to obtain sufficient cash to do
so. Accordingly, there can also be no assurance that the Debentures will be
repurchased prior to maturity.
The Company had cash and cash equivalents used in operating activities
of $5.9 million during 1994. Such amount consisted of $8.0 million of net
income less (i) net non-cash adjustments of $9.9 million and (ii) net
changes in operating assets and liabilities of $4.0 million. It is
anticipated that cash flows from operating activities for 1995 will
approximate break-even. Significant cash requirements for 1995, in addition
to requirements related to the intended early redemption of the Debentures
discussed above, will include a required $9.0 million sinking fund payment
on the Debentures (paid February 1, 1995) and approximately $3.0 million of
cash used by discontinued operations. The Company believes that its
existing cash and cash equivalents and marketable securities will be more
than sufficient to enable the Company to meet its short-term cash
requirements.
CONTINGENCIES
As a result of certain environmental audits in 1991, the Company became
aware of possible contamination by hydrocarbons and metals at certain sites
of the Company's ice and cold storage operations of the refrigeration
business and has filed appropriate notifications with state environmental
authorities and in 1994 completed a study of remediation at such sites. The
Company 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 the Company 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 some
instances of certain contaminated soils. Remediation is required at
thirteen sites which were sold to or leased for the purchaser of the ice
operations including eight sites at which remediation has recently been
completed or is ongoing. Such remediation is being made in conjunction with
the purchaser who is responsible for payments of up to $1.0 million of such
remediation costs, consisting of the first and third payments of $0.5
million. Remediation will also be required at seven cold storage sites
which were sold in April 1994 to the purchaser of the cold storage
operations. Such remediation is expected to commence in 1995 and will be
made in conjunction with such purchaser who is responsible for the first
$1.25 million of such costs. In addition, there are thirteen additional
inactive properties of the former refrigeration business where remediation
has been completed or is ongoing and which have either been sold or are held
for sale separate from the sales of the ice and cold storage operation.
Based on consultations with, and certain reports of, environmental
consultants and others, the Company presently estimates that its cost of all
of such remediation and/or removal will approximate $4.6 million, of which
$4.2 million was provided in prior years and $0.4 million was provided in
1994. In connection therewith, the Company has incurred actual costs of
$2.8 million through December 31, 1994 and has a remaining accrual of $1.8
million. Based on currently available information and the current reserve
levels, the Company does not believe that the ultimate outcome of the
remediation and/or removal will have a material adverse effect on its
financial position or results of 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. In 1990 and 1991 Graniteville provided reports to DHEC
summarizing its required study and investigation of the alleged pollution
and its sources which 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 (i) on human health, (ii) to existing
recreational uses or (iii) to the existing biological communities. In March
1994 DHEC appeared to conclude that while environmental monitoring at
Langley Pond should be continued, based on currently available information,
the most reasonable alternative is to leave the pond sediments undisturbed
and in place. DHEC has requested the Company submit a proposal by mid-April
1995 concerning periodic monitoring of sediment deposition in the pond and
Graniteville intends to comply with this request. 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 DHEC's recent conclusion and the absence of desirable remediation
alternatives, 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.
Graniteville owns a nine acre property in Aiken County, South Carolina
(the "Vaucluse Landfill"), which was used as a landfill until 1973. The
Vaucluse Landfill was operated jointly by Graniteville and Aiken County and
may have received municipal waste and possibly industrial waste from
Graniteville as well as sources other than Graniteville. In March 1990, a
"Site Screening Investigation" was conducted by DHEC. In June 1992
Graniteville conducted its initial investigation. The United States
Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental
investigation in February 1994. In response to the ESI, DHEC has indicated
its desire to have an investigation of the Vaucluse Landfill and has
verbally requested that Graniteville submit a proposal to DHEC outlining the
parameters of such an investigation. Since the investigation has not yet
commenced, Graniteville is currently unable to estimate the cost to
remediate the landfill. Such cost could vary based on the actual parameters
of the study. Based on currently available information, the Company does
not believe that the outcome of this matter will have a material adverse
effect on its consolidated results of operations or financial position.
The Company is also engaged in ordinary routine litigation incidental to
the Company's business. The Company does not believe that the environmental
matters discussed referred to above, as well as ordinary routine litigation,
will have a material adverse effect on its consolidated results of
operations or financial position.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index:
Independent Auditors' Report (in connection with the audit of the
consolidated financial statements as of and for the year ended
December 31, 1994)
Report of Independent Certified Public Accountants (in connection with
the audits of the consolidated financial statements as of December
31, 1993 and for the year ended February 28, 1993 and the ten months
ended December 31, 1993)
Consolidated Balance Sheets - December 31, 1993 and December 31, 1994
Consolidated Statements of Operations - Year ended February 28, 1993,
ten months ended December 31, 1993 and year ended December 31, 1994
Consolidated Statements of Additional Capital - Year ended February
28, 1993, ten months ended December 31, 1993 and year ended
December 31, 1994
Consolidated Statements of Cash Flows - Year ended February 28, 1993,
ten months ended December 31, 1993 and year ended December 31, 1994
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
SOUTHEASTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheet of
Southeastern Public Service Company and subsidiaries (the "Company", a
wholly-owned subsidiary of Triarc Companies, Inc. subsequent to April 14,
1994 and a 71.1% subsidiary prior thereto) as of December 31, 1994 and the
related consolidated statements of operations, additional capital and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1994, and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 24, 1995, except for
Note 22, as to which
the date is March 31, 1995
<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 sheet of
Southeastern Public Service Company (a Delaware corporation and a 71.1% owned
subsidiary of Triarc Companies, Inc. prior to April 14, 1994 and a wholly-
owned subsidiary thereafter) and subsidiaries as of December 31, 1993 and the
related consolidated statements of operations, additional capital and cash
flows for the year ended February 28, 1993 and for the ten months ended
December 31, 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 Southeastern
Public Service Company and subsidiaries as of December 31, 1993, and the
results of their operations and their cash flows for the year ended February
28, 1993 and for the ten months ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 9 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.
ARTHUR ANDERSEN
LLP
Miami, Florida,
April 14, 1994.
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December December
31, 1993 31, 1994
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ($20,646,000
and $24,665,000) $ 22,813 $ 25,807
Restricted cash (Note 5) 5,264 6,014
Marketable securities (Note 6) 10,795 9,152
Note receivable from RC/Arby's Corporation
(Note 17) -- 6,550
Receivables (less allowance for doubtful
accounts of $283,000 and $90,000) 4,734 5,051
Finished goods inventories 850 997
Other current assets 835 250
-------- --------
Total current assets 45,291 53,821
Properties, net (Note 7) 7,228 10,921
Due from Triarc Companies, Inc., net (Note 3) 25,358 27,769
Investments in affiliates (Notes 9 and 18) 68,211 83,995
Unamortized costs in excess of net assets of
acquired companies (Note 8) 126 7,447
Other assets 1,501 4,416
Net non-current assets of discontinued
operations (Note 4) 21,682 --
-------- --------
$169,397 $188,369
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (less
unamortized original issue discount of
$3,003,000 in 1994) (Note 11) $ 9,045 $ 51,056
Accounts payable 3,430 1,184
Accrued interest 3,160 2,690
Other accrued expenses 4,240 3,217
Net current liabilities of discontinued
operations (Note 4) 2,800 4,610
-------- --------
Total current liabilities 22,675 62,757
Long-term debt (less unamortized original issue
discount of $4,203,000 in 1993) (Note 11) 50,258 567
Other liabilities 2,045 3,043
Net non-current liabilities of discontinued
operations (Note 4) -- 1,360
Stockholders' equity (Note 13):
Series B, convertible preferred stock, $50 par
value; authorized 267,600 shares and issued 490
shares in 1993; none in 1994 24 --
Common stock, $1 par value; authorized 25,000,000
and 1,000 shares; issued 11,896,136 and 1,000
shares in 1993 and 1994, respectively 11,896 1
Additional paid-in capital 90,539 120,081
Retained earnings (deficit) (7,174) 786
Less 241,069 common shares in treasury in 1993,
at cost (866) --
Net unrealized loss on marketable securities,
net of income taxes (Note 6) -- (226)
-------- --------
Total stockholders' equity 94,419 120,642
-------- --------
$169,397 $188,369
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
Ten months
Year ended ended Year ended
February December December
28, 1993 31, 1993 31, 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales $ 28,520 $ 23,394 $ 28,110
-------- -------- --------
Costs and expenses:
Cost of sales 22,165 18,322 21,359
Selling, general and administrative 2,721 3,327 3,487
-------- -------- --------
24,886 21,649 24,846
-------- -------- --------
Operating profit 3,634 1,745 3,264
-------- -------- --------
Other income (expense):
Interest expense (13,901) (8,252) (8,169)
Equity in earnings of affiliates before
cumulative effect of changes in
accounting principles and extraordinary
charge of affiliate (Note 9) 12,161 4,489 7,414
Interest income from Triarc Companies,
Inc. (Note 3) 7,336 3,526 3,473
Other interest income 149 652 2,060
Gain (loss) on sale of marketable
securities (Notes 3 and 6) 6,000 -- (135)
Write-off of investment in Chesapeake
Insurance Company Limited -- (1,500) --
Other, net (Note 19) (1,136) 175 53
-------- -------- --------
10,609 (910) 4,696
-------- -------- --------
Income from continuing operations before
income taxes 14,243 835 7,960
Benefit from (provision for) income
taxes (Note 10) (1,671) 1,195 --
-------- -------- --------
Income from continuing operations 12,572 2,030 7,960
Loss from discontinued operations, net of
income taxes (Note 4) (5,542) (23,355) --
-------- -------- --------
Income (loss) before equity in extraordinary
charge of affiliate and cumulative effect
of changes in accounting principles 7,030 (21,325) 7,960
Equity in extraordinary charge of
affiliate (Note 9) (348) -- --
Cumulative effect of changes in accounting
principles:
Equity in affiliates (Note 9) (5,954) (102) --
The Company (Note 1) -- 7,617 --
-------- -------- --------
Net income (loss) $ 728 $(13,810) $ 7,960
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Statements of Additional Capital
<CAPTION>
Ten months
Year ended ended Year ended
February December December
28, 1993 31, 1993 31, 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Additional paid-in capital:
Balance at beginning of period $ 90,539 $ 90,539 $ 90,539
Excess of par value of issuance of
1,000 common shares over par value
of 11,896,136 common shares and
267,600 preferred shares cancelled
(Note 13) -- -- 11,919
Cancellation of treasury shares at
cost (Note 13) -- -- (866)
Pushdown of increased basis in the
Company in connection with the
Merger (Note 19) -- -- 17,004
Contribution from Triarc Companies,
Inc. of 1% of its ownership in
Graniteville Company (Note 9) -- -- 1,485
-------- -------- --------
Balance at end of period $ 90,539 $ 90,539 $ 120,081
======== ======== ========
Retained earnings (deficit):
Balance at beginning of period $ 5,910 $ 6,637 $ (7,174)
Net income (loss) 728 (13,810) 7,960
Cash dividends on preferred stock (1) (1) --
-------- -------- --------
Balance at end of period $ 6,637 $ (7,174) $ 786
======== ======== ========
Treasury stock:
Balance at beginning of period $ 866 $ 866 $ 866
Recapitalization (Note 13) -- -- (866)
-------- -------- --------
Balance at end of period $ 866 $ 866 $ --
======== ======== ========
Net unrealized loss on marketable
securities:
Balance at beginning of period $ -- $ -- $ --
Net unrealized losses on marketable
securities, net of income taxes
(Note 6) -- -- (226)
-------- -------- --------
Balance at end of period $ -- $ -- $ (226)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Ten months
Year ended ended Year ended
February December December
28, 1993 31, 1993 31, 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 728 $ (13,810) $ 7,960
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation of properties 1,246 1,004 1,236
Amortization of deferred financing
costs and original issue discount 1,663 1,296 1,440
Amortization of costs in excess of net
assets of acquired companies 19 15 95
Interest income from Triarc Companies,
Inc. capitalized and not collected -- -- (3,450)
Provision for (benefit from)
doubtful accounts 188 140 (23)
Loss (gain) on sale of marketable
securities (6,000) -- 135
Equity in net earnings of affiliates (5,014) (4,387) (7,414)
Write-off of investment in Chesapeake
Insurance Company Limited -- 1,500 --
Provision for (benefit from) deferred
income taxes 1,261 (1,195) --
Dividends from unconsolidated affiliate 3,004 -- --
Cumulative effect of changes in
accounting principles -- (7,617) --
Loss from discontinued operations, net
of income taxes 5,542 23,355 --
Other, net (298) 1,676 (1,948)
Decrease (increase) in:
Receivables (312) (1,573) (294)
Inventories 292 (117) (137)
Other current assets (481) (112) 585
Increase (decrease) in:
Accounts payable 575 1,181 (1,681)
Other accruals (873) 2,776 (2,463)
-------- -------- --------
Net cash provided by (used in)
operating activities 1,540 4,132 (5,959)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries, net -- 43,002 28,720
Loan to RC/Arby's Corporation -- -- (6,550)
Purchases of marketable securities -- (10,795) (10,308)
Sales of marketable securities -- -- 11,033
Purchase of notes receivable from
an affiliate, net of repayments -- -- (1,200)
Capital expenditures (656) (411) (591)
Proceeds from sales of properties 73 178 27
Repayment of notes and amounts due
from Triarc Companies, Inc. 3,828 25,379 (88)
Other, net -- -- 237
-------- -------- ---------
Net cash provided by
investing activities 3,245 57,353 21,280
-------- -------- ---------
Cash flows from financing activities:
Net proceeds from (repayments of)
accounts receivable financing 747 (9,536) --
Repayments of long-term debt (9,249) -- (9,029)
Proceeds from (repayments of)
notes payable to affiliate 8,400 (14,043) --
Other, net (1) (224) (703)
-------- -------- --------
Net cash used in financing
activities (103) (23,803) (9,732)
-------- -------- --------
Net cash provided by continuing operations 4,682 37,682 5,589
Net cash used by discontinued operations (4,725) (15,108) (2,595)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents (43) 22,574 2,994
Cash and cash equivalents at beginning
of period 282 239 22,813
-------- -------- --------
Cash and cash equivalents at end
of period $ 239 $ 22,813 $ 25,807
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the
period for:
Interest $ 11,401 $ 6,402 $ 7,170
======== ======== ========
Income taxes $ 2,204 $ 490 $ (137)
======== ======== ========
</TABLE>
Due to their noncash nature, the following transactions have not been
reflected in the respective consolidated statements of cash flows:
In April 1994 Triarc Companies, Inc. ("Triarc") acquired the 28.9%
minority interest in Southeastern Public Service Company (the "Company") that
it did not already own through the issuance of its common stock. As
discussed further in Note 19 to the accompanying consolidated financial
statements, $17,004,000 of Triarc's excess of cost over the carrying value of
the minority interest acquired was pushed down to the Company.
Effective August 31, 1994 Triarc, which indirectly owned 51% of
Graniteville Company ("Graniteville"), contributed 1% of its ownership of
Graniteville to the Company, increasing the Company's ownership to 50% and
resulting in an increase to "Additional paid-in capital" of $1,485,000.
During the year ended February 28, 1993, ten months ended December 31,
1993 and year ended December 31, 1994, the Company received interest payments
from Triarc of $6,026,000, $3,308,000 and $1,543,000 respectively, in the
form of offsets against amounts due from the Company to Triarc. During the
year ended February 28, 1993, amounts payable to Triarc were netted against a
$6,500,000 promissory note receivable from Triarc (see Note 3).
See accompanying notes to consolidated financial statements.
<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 (the "Company") a wholly-owned subsidiary
of Triarc Companies, Inc. and its subsidiaries ("Triarc") subsequent to April
14, 1994 and a 71.1% owned subsidiary of Triarc prior thereto (see Note 19).
Due to their sale or liquidation (see Note 4), all subsidiaries of the
Company, except for the liquefied petroleum gas ("LP Gas") business, have
been reflected as discontinued operations. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash Equivalents
All highly liquid instruments with a maturity of three months or less
when acquired are considered cash equivalents. The Company typically invests
its excess cash in repurchase agreements with high credit-quality financial
institutions. Securities pledged as collateral for repurchase agreements are
segregated and held by the financial institution until maturity of each
repurchase agreement. While the market value of the collateral is sufficient
in the event of default, realization and/or retention of the collateral may
be subject to legal proceedings in the event of default or bankruptcy by the
other party to the agreement.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") effective January 1, 1994. The Company's marketable securities
are classified in accordance with SFAS 115 as "available for sale" and, as
such, net unrealized gains or losses are reported as a separate component of
stockholders' equity. Prior to January 1, 1994 the Company accounted for its
marketable securities in accordance with SFAS No. 12, "Accounting for Certain
Marketable Securities". The adoption of SFAS 115 did not have a material
effect on the Company's consolidated financial statements.
Inventories
Inventories are determined under the lower of cost (first-in, first-out
basis) or market.
Investments in Affiliates
The Company accounts for its investments in Graniteville Company
("Graniteville"), a 50% owned affiliate (49% prior to August 30, 1994), and
CFC Holdings Corp. ("CFC Holdings"), a 5.4% owned affiliate, in accordance
with the equity method. See Note 2 for periods included in the consolidated
financial statements prior to 1994 and Note 19 for discussion of the merger
consummated on April 14, 1994.
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.
Unamortized Costs in Excess of Net Assets of Acquired Companies
Costs in excess of net assets of acquired companies are being amortized
on the straight-line basis over 25 to 30 years. The amount of impairment, if
any, in "Unamortized costs in excess of net assets of acquired companies"
("Goodwill") is measured based on projected future results of operations. To
the extent future results of operations of those subsidiaries to which the
Goodwill relates through the period such Goodwill is being amortized are
sufficient to absorb the related amortization, the Company has deemed there
to be no impairment of Goodwill.
Amortization of Deferred Financing Costs and Debt Discount
Deferred financing costs and original issue debt discount resulting from
the Company'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 December 31, 1993 and 1994, $846,000 and $605,000,
respectively, of such unamortized deferred financing costs are included in
"Other assets" in the accompanying consolidated balance sheets. Unamortized
original issue debt discount is reported as a reduction of related long-term
debt or current portion of long term debt, as appropriate (see Note 11), in
the accompanying consolidated balance sheets.
Income Taxes
Subsequent to April 14, 1994 the Company and its subsidiaries are
included in the consolidated Federal income tax return of Triarc. Prior to
April 14, 1994 the Company and its consolidated subsidiaries filed a separate
consolidated Federal income tax return.
The Company adopted SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109") effective March 1, 1993. This accounting change resulted in a benefit
of $7,617,000, 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 (see Note 2).
Deferred income taxes are provided to recognize the tax effect of
temporary differences between the bases of assets and liabilities for tax and
financial statement purposes.
Postretirement Benefits Other than Pensions
Effective March 1, 1993, the Company 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.
Revenue Recognition
Liquefied petroleum gas tank and cylinder rental fees are billed in
advance for periods of up to one year and the related income is principally
recognized ratably over the rental period.
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 Fiscal Year
On October 27, 1993 the Company's Board of Directors approved a change
in the fiscal year of the Company from a fiscal year ending February 28 to a
calendar year ending December 31, effective for the ten-month transition
period ending December 31, 1993 ("Transition 1993"). Graniteville also
changed its fiscal year to a calendar year ending December 31. As used
herein, "Fiscal 1993" refers to the year ended February 28, 1993 and "1994"
refers to the year ended December 31, 1994.
The following sets forth unaudited condensed consolidated financial
information for the corresponding ten months ended December 31, 1992, the
comparable prior year period to Transition 1993 (in thousands):
<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, net of income taxes (654)
Equity in cumulative effect of changes
in accounting principles of affiliate (5,954)
Net income 1,241
</TABLE>
(3) Change in Control
As previously reported, a change in control of the Company's parent,
Triarc, occurred on April 23, 1993, which as a result of Triarc's ownership
of the Company's voting securities constituted a change in control of the
Company (the "Change in Control"). In connection with the Change in Control,
the Board of Directors of the Company was reconstituted and new senior
executive officers were elected.
In connection therewith, the Company 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 the Company. 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
the Company 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 the Company. The remaining
$26,538,000 principal balance of the Note included in "Due from Triarc
Companies, Inc. net" is due on August 1, 1998. The Note resulted from the
1986 sale of approximately 51% of the outstanding common shares of
Graniteville to Triarc and is secured by shares representing the 50% of the
outstanding shares of Graniteville currently owned by Triarc. 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. The Company 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
the Company 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.
(4) Discontinued Operations
On July 22, 1993 the Company's Board of Directors authorized the sale or
liquidation of its utility and municipal services ("Services"), refrigeration
("Refrigeration") and natural gas and oil ("NG&O") business segments which
have been accounted for as discontinued operations in the Company's
consolidated financial statements.
On October 15, 1993 the Company sold the assets of its tree maintenance
services operations previously included in the Services segment for
$69,600,000 in cash plus the assumption by the purchaser of up to $5,000,000
in current liabilities resulting in a loss of approximately $4,370,000. On
October 7, 1993 the Company sold the stock of its two construction related
operations previously included in the Services segment for a nominal amount
subject to adjustments described below. During October and November 1993 the
Company paid $2,000,000 to cover the buyer's short-term operating losses and
working capital requirements for the construction related operations and from
October 1993 through March 1994 paid $1,094,000 to repay the outstanding
lease balances on equipment to be sold. As the related assets are sold or
liquidated the purchasers were to pay, as deferred purchase price, a portion
of the net proceeds received therefrom (cash of $2,941,000 had been received
as of December 31, 1994) plus, in the case of one of the entities, an amount
based on the adjusted book value of such entity as of October 5, 1995 (the
"Book Value Adjustment"). In March 1995 the Company agreed to settle any
further amounts due for assets sold or the Book Value Adjustment. Such
settlement provides for aggregate payments of $500,000 to be received in
quarterly installments of $100,000 each commencing June 1, 1995, together
with interest at 8 1/2% on the remaining outstanding balance, plus 75% of the
proceeds of one property held for sale or, if not sold by December 31, 1996,
$275,000 or the return of the property to the Company. The Company incurred
a loss of approximately $500,000 on the sales of the construction related
operations excluding consideration of any additional proceeds from the
aforementioned settlement agreement.
On April 8, 1994 the Company 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 $1,162,000. Such
sale resulted in a loss of approximately $5,500,000, excluding any
consideration of the $4,295,000 note from the buyer since its collection is
not reasonably assured. The note, which bears no interest during the first
year and 5% thereafter, is payable in annual installments of $120,000 in 1995
through 1998 with the balance of $3,815,000 due in 1999. On December 20,
1994, the Company sold either the stock or operating assets of the companies
comprising the cold storage operations of the Company's Refrigeration
business segment to National Cold Storage, Inc. ("NCS") a company formed by
two former officers of the Company for cash of $6,500,000, a $3,000,000 note
(discounted value $2,486,000) and the assumption by the buyer of certain
liabilities of $2,750,000. In addition, the Company sold certain cold
storage properties to several buyers for aggregate cash proceeds of $990,000
and a note for $700,000. The Company incurred an aggregate loss on the sale
of the cold storage operations and properties of approximately $4,500,000
excluding any consideration of the $3,000,000 note from NCS since collection
of the note is not reasonably assured. The note from NCS bears no interest
during the first year and 8% thereafter payable at maturity, does not
amortize and is due in full in December 2000.
On August 31, 1994 the Company sold substantially all of the operating
assets of the NG&O business for cash of $16,250,000, net of $750,000 held in
escrow to cover certain indemnities given to the buyer. Such sale resulted
in a pre-tax gain of $6,043,000. In February 1995 the Company sold the
remaining assets of the NG&O business for net proceeds of $728,000 which
resulted in an estimated pre-tax gain of $650,000.
In connection with the dispositions referred to above, during Transition
1993 the Company provided $13,910,000 for the estimated loss on the sale of
the discontinued operations. The estimate principally reflects (i)
approximately $4,600,000 of losses from the sales of the operations
comprising the Services business segment, (ii) approximately $6,700,000 of
losses from the sale of operations comprising the Company's Refrigeration
business segment, (iii) approximately $2,500,000 of estimated losses from
operations from July 22, 1993 to the actual or estimated disposal dates of
the discontinued operations and (iv) and $110,000 of other items.
After consideration of (i) a $2,866,000 write-down (net of a tax benefit
of $2,037,000) relating to accruals for environmental remediation and losses
on certain contracts in progress recorded in Fiscal 1993, (ii) a $4,676,000
write-down (net of a tax benefit of $3,324,000) relating to the impairment of
certain unprofitable properties recorded in Transition 1993 and (iii) the
aforementioned $13,910,000 provision (with no tax benefit) for the estimated
loss on the sale of the discontinued operations recorded during Transition
1993, the Company expects the liquidation of the remaining liabilities
associated with the discontinued operations will not have a material impact
on its consolidated financial position or results of operations.
In addition, on July 22, 1993 the Company's Board of Directors
authorized the sale or liquidation of the LP Gas business. The Company
intended to transfer the LP Gas business to a subsidiary of Triarc, however
the precise method of such transfer had not been determined as of March 24,
1995. Based on these facts, the Company has continued to reflect the LP Gas
business as a continuing operations (see Note 22 for developments subsequent
to March 24, 1995).
The loss from discontinued operations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Transition
1993 1993
----- -----
<S> <C> <C>
Loss from operations of
discontinued operations,
net of income tax benefit
of $2,420 and $3,830 $ (5,542) $ (9,445)
Loss on disposal of discontinued
operations, without income
tax benefit -- (13,910)
-------- --------
$ (5,542) $(23,355)
======== ========
</TABLE>
<PAGE>
The loss from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period July 23, 1993
to December 31, 1993, and 1994 (the periods subsequent to the measurement
date and which have been previously recognized) consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Transition 1993
----------------------
March 1, July 23,
1993 to 1993 to
Fiscal July 22, December
1993 1993 31, 1993 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues:
Net sales $ 16,665 $ 8,054 $ 5,733 $ 6,083
Service revenues 188,049 75,502 43,600 8,832
-------- -------- -------- --------
204,714 83,556 49,333 14,915
Operating costs and expenses:
Cost of sales 14,739 6,401 5,291 5,206
Cost of services 176,895 70,922 40,810 6,739
Selling, general and
administrative 15,081 5,890 7,084 2,873
Write-down of certain
unprofitable properties -- 8,000 -- --
Facilities relocation and
corporate restructuring (Note 18) -- 3,933 -- --
-------- -------- -------- --------
206,715 95,146 53,185 14,818
-------- -------- -------- --------
Operating profit (loss) (2,001) (11,590) (3,852) 97
-------- -------- -------- --------
Other income (expense):
Interest expense (3,747) (1,291) (610) (13)
Other, net (2,214) (394) 335 (295)
-------- -------- -------- --------
(5,961) (1,685) (275) (308)
-------- -------- -------- --------
Loss before income taxes (7,962) (13,275) (4,127) (211)
Benefit from income taxes 2,420 3,830 283 --
-------- -------- -------- --------
Loss from discontinued operations $ (5,542) $ (9,445) $ (3,844) $ (211)
======== ======== ======== ========
</TABLE>
<PAGE>
Net current liabilities and non-current assets (liabilities) of
discontinued operations consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Current assets:
Cash $ 561 $ 22
Receivables, less allowance
for doubtful accounts 1,725 167
Inventories 804 1
Other current assets 253 9
-------- --------
Total current assets 3,343 199
-------- --------
Current liabilities:
Current portion of long-term debt (6) --
Current portion of capital leases
due to leasing affiliate (288) --
Accounts payable (2,479) (18)
Accrued salaries and wages (348) --
Other accrued expenses (3,022) (4,791)
-------- --------
Total current liabilities (6,143) (4,809)
-------- --------
Net current liabilities of discontinued
operations $ (2,800) $ (4,610)
======== ========
Non-current assets:
Properties, net $ 24,962 $ 45
Other assets 72 --
-------- --------
Total non-current assets 25,034 45
-------- --------
Non-current liabilities:
Long-term debt (12) --
Capitalized leases due to leasing affiliate (227) --
Environmental and other liabilities (3,113) (1,405)
-------- --------
Total non-current liabilities (3,352) (1,405)
-------- --------
Net non-current assets (liabilities) of
discontinued operations $ 21,682 $ (1,360)
======== ========
</TABLE>
<PAGE>
(5) Restricted Cash
The following is a summary of restricted cash (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Deposits securing letters of
credit (a) $ 5,264 $ 5,264
Indemnity escrow account relating
to sale of business (Note 4) -- 750
-------- --------
$ 5,264 $ 6,014
======== ========
<FN>
(a) Deposits secure outstanding letters of credit principally for the
purpose of securing certain performance and other bonds.
</TABLE>
(6) Marketable Securities
The Company's marketable securities are stated at cost at December 31,
1993 and at fair value at December 31, 1994. The cost and fair value of the
Company's marketable securities at December 31, 1993 and 1994, were as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994
------------------ ------------------
Fair Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity securities $ 1,025 $ 1,158 $ 17 $ 17
Corporate debt securities(a) 9,610 9,729 9,430 9,083
Debt securities issued by
foreign governments 160 160 53 52
-------- -------- -------- --------
$ 10,795 $ 11,047 $ 9,500 $ 9,152
======== ======== ======== ========
<FN>
(a) Contractual maturity dates through 2006.
</TABLE>
During 1994 the Company realized a net loss from the sales of marketable
securities of $135,000. As of December 31, 1994 the Company had a net
unrealized loss of $226,000, net of tax benefit of $122,000.
(7) Properties
The following is a summary of the components of properties, at cost (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Land $ 1,707 $ 2,240
Buildings and improvements 1,241 1,176
Machinery and equipment 13,684 17,314
Automotive equipment 3,951 4,122
-------- --------
20,583 24,852
Less accumulated depreciation 13,355 13,931
-------- --------
$ 7,228 $ 10,921
======== ========
</TABLE>
(8) Unamortized Costs in Excess of Net Assets of Acquired Companies
The following is a summary of the components of the unamortized costs in
excess of net assets of acquired companies (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Costs in excess of net assets of acquired
companies (Note 19) $ 739 $ 8,169
Less accumulated amortization 613 722
-------- --------
$ 126 $ 7,447
======== ========
</TABLE>
(9) Investments in Affiliates
The Company 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 stockholder's 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 the
Company and Graniteville wrote off their investments in such stock during
Transition 1993 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 (the
parent of Chesapeake Insurance), respectively.
Investments in affiliates consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Graniteville $ 67,824 $ 83,722
CFC Holdings 387 273
-------- --------
$ 68,211 $ 83,995
======== ========
</TABLE>
Equity in earnings of affiliates before income taxes on the ultimate
distribution of earnings of affiliates of the Company, cumulative effect of
changes in accounting principles and extraordinary charge consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Fiscal Transition
1993 1993 1994
----- ----- -----
<S> <C> <C> <C>
Graniteville $ 12,426 $ 5,294 $ 7,528
CFC Holdings (265) (805) (114)
-------- -------- --------
$ 12,161 $ 4,489 $ 7,414
======== ======== ========
</TABLE>
Graniteville
Summary consolidated balance sheet information at December 31, 1993 and
December 31, 1994 and summary consolidated income statement information for
Fiscal 1993, Transition 1993 and December 31, 1994 for Graniteville are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Summary Consolidated Balance
Sheet Information:
Current assets $ 177,109 $ 182,894
Properties, net 117,950 130,537
Note receivable from Triarc 70,446 73,827
Other assets 6,130 22,349
-------- --------
$ 371,635 $ 409,607
======== ========
Current liabilities $ 58,630 $ 62,635
Long-term debt 150,949 154,632
Deferred income taxes 21,934 23,308
Other liabilities 1,706 1,588
Stockholders' equity 138,416 167,444
-------- --------
$ 371,635 $ 409,607
======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Transition
1993 1993 1994
----- ----- -----
<S> <C> <C> <C>
Summary Consolidated Income
Statement Information:
Operating revenues $499,060 $ 448,867 $536,918
Operating profit 49,734 30,215 33,954
Income before cumulative
effect of changes in
accounting principles 25,360 10,804 15,260
Net income 12,324 10,804 15,260
</TABLE>
Effective August 31, 1994 Triarc, which indirectly owned 51% of
Graniteville, contributed 1% of its ownership of Graniteville to the Company,
increasing the Company's ownership to 50%. The contribution, which amounted
to $1,485,000, was recorded at Triarc's book value since such transaction was
among a controlled group of companies.
During 1994, in conjunction with the Merger (see Note 19), both Triarc
and the Company assigned $6,884,000 of unamortized costs in excess of net
assets of acquired companies to their respective investments in Graniteville.
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 income amounting to $12,314,000 for
SFAS 109 and $722,000, net of Graniteville's taxes of $429,000 for SFAS 106.
The Company's equity, net of taxes of $434,000, in such cumulative effect,
amounted to a charge of $5,954,000.
The Company's investment in Graniteville's common stock is pledged as
collateral for Triarc's guarantee of Graniteville's obligations under
Graniteville's credit facility.
Under its credit facility, Graniteville is permitted to pay dividends or
make loans or advances to its stockholders, including the Company 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 $61,000,000 as of December 31, 1994) and certain other
conditions are met. Accordingly, Graniteville is unable to pay any dividends
to or make any loans or advances to the Company prior to December 31, 1995.
A cash dividend was received by the Company from its investment in
Graniteville under its previous credit facility of $3,004,000, in the year
ended February 28, 1993.
CFC Holdings
The Company owns 5.4% of the outstanding common stock of CFC Holdings
with the remaining 94.6% of such common stock owned by Triarc. CFC Holdings
owns 100% of RC/Arby's Corporation ("RCAC", the principal subsidiaries of
which are Arby's, Inc. ("Arby's") and Royal Crown Company, Inc.).
The Company's equity in extraordinary charge relates to CFC Holdings and
consisted of a charge in Fiscal 1993 of $348,000 due to the early
extinguishment of debt.
(10) Income Taxes
The benefit from (provision for) income taxes from continuing operations
consisted of the following components (in thousands):
<TABLE>
<CAPTION>>
Fiscal Transition
1993 1993 1994
---- ---- -----
<S> <C> <C> <C>
Current:
Federal $ (183) $ -- $ --
State (227) -- --
-------- -------- --------
(410) -- --
-------- -------- --------
Deferred:
Federal (1,291) 1,195 --
State 30 -- --
-------- -------- --------
(1,261) 1,195 --
-------- -------- --------
$ (1,671) $ 1,195 $ --
======== ======== ========
</TABLE>
The current and non-current deferred income tax assets (liabilities) are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
Current deferred tax assets:
Litigation settlement reserve $ 332 $ 77
Reserve for losses on discontinued
operations 1,841 4,999
Accrued employee benefit costs 790 430
Allowance for doubtful accounts 182 35
Other 303 48
-------- --------
3,448 5,589
Less valuation allowance (3,448) (5,589)
-------- --------
$ -- $ --
======== ========
Non-current deferred tax assets
(liabilities):
Depreciation and other properties
basis differences $ (8,014) $ (2,938)
Reserve for income tax contingencies
and other tax matters (973) (937)
Original issue discount 1,553 1,332
Non-deductible insurance loss
reserves paid to affiliate 1,469 1,402
Reserve for environmental costs 930 527
Alternative minimum tax, net
operating loss and depletion
carryforwards 7,303 --
Other 47 614
-------- --------
2,315 --
Less valuation allowance (2,315) --
-------- --------
$ -- $ --
======== ========
</TABLE>
The Company has provided a valuation allowance as management believes it
is more likely than not that the deferred tax assets will not be realized on
a Company stand alone basis. The principal remaining components of deferred
tax assets are reserves for discontinued operations and estimated accruals
not currently deductible for tax purposes. The Company believes that a
valuation allowance is required against the remaining deferred tax assets as
management is uncertain about the ultimate resolution of discontinued
operations. The net valuation allowance decreased from the December 31, 1993
balance of $5,763,000 to the December 31, 1994 balance of $5,589,000 as a
result of $440,000 of utilization of operating loss, depletion and tax credit
carryforwards in 1994 offset by additional valuation allowances of (i)
$144,000 established in purchase accounting for the Merger (see Note 19)
recorded as "Goodwill" and (ii) $122,000 in connection with the unrealized
loss associated with "available for sale" marketable securities (see Note 6).
Deferred income tax (provision) benefit results from timing differences
in the recognition of income and expenses for tax and financial statement
purposes. The tax effect of the principal timing differences are as follows
(such disclosure is not presented for Transition 1993 and 1994 as it is not
required under SFAS 109) (in thousands):
<TABLE>
<CAPTION>
Fiscal
1993
-------
<S> <C>
Gain on sale of marketable security $ (2,040)
Settlement of litigation 442
Book over tax depreciation 339
Other (2)
--------
$ (1,261)
========
</TABLE>
The difference between the reported benefit from (provision for)
income taxes and a computed tax provision based on income from continuing
operations before income taxes at the Federal statutory rate of 34.2% for
Fiscal 1993 and 35% for Transition 1993 and 1994 is reconciled as follows (in
thousands):
<TABLE>
<CAPTION>>
Fiscal Transition
1993 1993 1994
----- ----- -----
<S> <C> <C> <C>
Income taxes computed at Federal
statutory tax rate $ (4,871) $ (292) $ (2,785)
Decrease (increase) in Federal
taxes from:
Equity in earnings of
affiliates 3,308 1,571 2,595
State taxes, net of Federal
income tax benefit (130) -- --
Utilization of operating loss,
depletion and tax credit
carryforwards -- -- 440
Consulting Agreement (Note 18) -- (80) --
Other, net 22 (4) (250)
-------- -------- --------
$ (1,671) $ 1,195 $ --
======== ======== ========
</TABLE>
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service ("IRS") for the tax years 1986 through 1988. The
Company has resolved all but one issue related to such audit at no
significant cost to the Company. The Company is contesting the remaining
open issue at the Appellate Division of the IRS. The IRS is currently
examining the Company's Federal income tax returns for the tax years from
1989 through 1992 and has proposed certain adjustments, some of which will be
contested by the Company. The amount and timing of any payments required as
a result of (i) the remaining open issue from the 1986 through 1988
examination and (ii) the 1989 through 1992 examination cannot be determined.
However, the Company believes that adequate aggregate provisions have been
made in years prior to 1994 for any tax liabilities, including interest, that
may result from such examinations and other tax matters.
(11) Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1994
----- -----
<S> <C> <C>
11 7/8% Senior Subordinated Debentures due
February 1, 1998 payable $9,000 in 1995
through 1997 through a sinking fund with
the remaining $27,000 due February 1, 1998
(less unamortized original issue discount
of $4,203 and $3,003) $ 58,797 $ 50,997
7% - 10% mortgage and equipment notes due
1995 to 2003 506 476
Other -- 150
-------- --------
59,303 51,623
Less current portion of long-term debt 9,045 51,056
-------- --------
$ 50,258 $ 567
======== ========
</TABLE>
Aggregate annual maturities, including planned acceleration of payments
not contractually required (see below), of long-term debt are as follows as
of December 31, 1994 (in thousands):
<TABLE>
Year ended December 31,
<S> <C>
1995 $ 54,059
Less unamortized original issue discount 3,003
---------
51,056
1996 65
1997 70
1998 77
1999 83
Thereafter 272
--------
$ 51,623
========
</TABLE>
As discussed in Note 22 Public Gas Company ("Public Gas"), a 99.7% owned
subsidiary which comprises the LP Gas business, has signed a letter of intent
to merge with National Propane ("National Propane"), a wholly owned
subsidiary of Triarc. In connection therewith, the Company intends to
repurchase the Debentures ($45,000,000 outstanding principal amount as of
February 28, 1995) prior to maturity during 1995. The Company anticipates
financing such repurchase with collection of the Note due from Triarc
($26,538,000), the Company's available cash and marketable securities
($21,057,000 at February 28, 1995) and the remainder, if any, with advances
from Triarc. Accordingly, the Company has classified all of the outstanding
principal amount of the Debentures ($54,000,000 as of December 31, 1994),
less unamortized original issue discount ($3,003,000 at December 31, 1994),
as "Current portion of long-term debt".
Under provisions of the indenture (the "Indenture") pursuant to which
the Debentures were issued, the Company is not permitted to pay cash
dividends as of December 31, 1994. The Company may, however, make loans or
advances to Triarc and its subsidiaries.
The Indenture contains a provision which limits to $100,000,000 the
aggregate amount of specified kinds of indebtedness that the Company and its
consolidated subsidiaries can incur. At December 31, 1994 such indebtedness
was $51,623,000 resulting in allowable indebtedness of $48,377,000.
(12) Fair Value of Financial Instruments
The Company estimates that the carrying value of the Note (see Note 3)
of $26,538,000 at December 31, 1993 and 1994 approximates fair value based
upon estimated market prices for a security with a comparable maturity,
interest rate and security of principal.
At December 31, 1993 the Company's marketable securities were carried at
cost of $10,795,000; the fair value of such securities was $11,047,000. In
accordance with SFAS 115, the Company has adjusted its investments in
marketable securities to their fair value of $9,152,000 as of December 31,
1994 based upon quoted market prices (see Notes 1 and 6).
The fair values of the Debentures were approximately $5,500,000 and
$2,500,000 higher than the respective carrying values of $58,797,000 and
$50,997,000 (see Note 11) at December 31, 1993 and 1994, respectively, based
on quoted market prices.
The Company estimates that the carrying value of its promissory note
receivable from RCAC of $6,550,000 (see Note 17) approximates fair value due
to its recent issuance and relatively short maturity.
(13) Stockholders' Equity
As of December 31, 1994 Triarc owns 100% (71.1% prior to April 14,
1994 - see Note 19) of the Company's outstanding common stock, $1.00 par
value per share, (the "Company Common Stock") and all of the convertible
preferred stock. The Company had 490 issued and outstanding shares of
preferred stock, 11,896,136 issued shares of common stock and 241,069 common
shares in treasury from March 1, 1992 through April 14, 1994, the date of the
Merger (see Note 19).
In April 1994 the Company was recapitalized (the "Recapitalization")
whereby all of its then authorized and issued preferred stock and common
stock, including common stock held in treasury, were canceled and 1,000
shares of common stock, $1.00 par value, were authorized and issued. The net
effect of the $1,000 of common stock issued and the cancellation of $24,000
of "Preferred stock", $11,896,000 of "Common stock" and $866,000 of "Treasury
stock" aggregating $11,053,000 was credited to "Additional paid-in capital".
Included in "Retained earnings (deficit)" at December 31, 1993 and 1994
are $7,696,000 and $15,110,000 of net undistributed earnings of
unconsolidated affiliates, respectively.
(14) Redemption of Subsidiary Preferred Stock
On June 21, 1994 a subsidiary of the Company redeemed 70,369 shares of
the subsidiary's $1.00 par value convertible preferred stock, representing
all of the then issued and outstanding preferred shares of the subsidiary, at
par value aggregating $704,000 plus $10,000 of accrued and unpaid dividends.
The $665,000 excess of the $704,000 purchase price over the $39,000 carrying
value of the stock was recorded as an addition to "Unamortized costs in
excess of net assets of acquired companies". Prior to its redemption, the
carrying value of such preferred stock was reported in "Other liabilities".
(15) Lease Commitments
The Company 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 $1,029,000 and $911,000 at December 31, 1993 and
1994, respectively. The Company also leases office space under operating
leases.
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, all of which relate to continuing
operations, are as follows as of December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ---------
<S> <C> <C>
1995 $ 225 $ 320
1996 117 166
1997 53 76
1998 23 36
1999 -- 27
Thereafter -- 1
-------- --------
Total minimum lease payments 418 $ 626
========
Less interest 62
--------
Present value of minimum capital
lease payments included in "Other
liabilities" $ 356
========
</TABLE>
Rental expense under operating leases in Fiscal 1993, Transition 1993
and 1994 was $485,000, $370,000 and $564,000, respectively, related to
continuing operations and $1,527,000, $1,100,000 and $81,000, respectively
related to discontinued operations.
(16) Retirement and Incentive Compensation Plans
Substantially all of the employees of the continuing and discontinued
businesses are covered under the Company's 401(k) defined contribution plan
or one of the multi-employer union plans to which the Company contributes.
The defined contribution plan allows eligible employees to contribute up
to 15% of their total earnings, subject to certain limitations. The Company
makes a matching contribution for eligible employees of 25% of employee
contributions up to the first 5% of an employee's compensation and an
additional contribution equal to 1/4 of 1% of employee total earnings. Total
contributions were $394,000 in Fiscal 1993, $133,000 in Transition 1993 and
$66,000 in 1994 (of which $39,000, $36,000 and $47,000, respectively, was
contributed by the continuing operations and $355,000, $97,000 and $19,000,
respectively, was contributed by the discontinued operations).
The Company provided defined benefit plans for employees of certain
subsidiaries. All of the plans were frozen and terminated prior to Fiscal
1993. Substantially all of the gain on such reversions had previously been
reflected through February 28, 1992 in accordance with SFAS 87. 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.
Under certain union contracts, the Company is required to make payments
to the union pension funds based upon hours worked by the eligible employees.
Payments to the funds amounted to $784,000 in Fiscal 1993, $536,000 in
Transition 1993 and $102,000 in 1994 (of which $83,000, $68,000 and $72,000,
respectively, was paid by the continuing operations and $701,000, $468,000
and $30,000, respectively, was paid by the discontinued operations).
Information from the plan administrators of the funds is not available to
permit the Company to determine its share of unfunded vested benefits, if
any.
During Transition 1993 Triarc granted stock options to certain key
employees of the Company 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 in Transition 1993 and $31,000 in 1994 (of which $2,000 and $18,000,
respectively, was allocated to continuing operations and included in
"Selling, general and administrative" and $6,000 and $13,000, respectively,
was allocated to discontinued operations).
(17) Transactions with Affiliates
In March 1994, the Company purchased certain notes receivable for cash
from Arby's for their face value of $1,190,000 plus $49,000 of accrued
interest.
In August 1994, the Company entered into a credit arrangement with RCAC
and in accordance therewith received a promissory note from RCAC (the "RCAC
Note") maturing in September 1995 pursuant to which the Company may lend up
to $9,500,000. Loans under the promissory note bear interest at 11 7/8% per
annum, payable quarterly. As of December 31, 1994, the Company had made
loans under the RCAC Note of $6,550,000. Subsequent to December 31, 1994 the
remaining $2,950,000 under the RCAC Note was loaned to RCAC. During 1994,
$93,000 of interest income with respect to the RCAC Note was recorded of
which $63,000 was received from RCAC.
In September 1994, the Company received a demand promissory note from
Triarc (the "Triarc Note") pursuant to which the Company may make loans to
Triarc. Loans under the Triarc Note bear interest at the prime rate plus 1
1/4%. As of December 31, 1994 the Company had no loans outstanding under the
Triarc Note; however, $3,500,000 was subsequently loaned to Triarc through
March 31, 1995. During 1994, the Company received and recorded interest
income of $23,000 with respect to 1994 loans repaid prior to December 31,
1994 under the Triarc Note.
In Fiscal 1993, the Company increased its borrowings from Chesapeake
Insurance by $8,400,000 to $14,043,000. The loans from Chesapeake Insurance
were payable on demand and bore interest at an annual rate of 11 7/8%. On
April 23, 1993 the Company paid in full such loans amounting to $14,426,000
including $383,000 of accrued interest to Chesapeake Insurance (see Note 3).
Effective June 1, 1994, the Company entered into a letter agreement with
Chesapeake Insurance with respect to $2,090,000 of past due insurance
premiums. Such past due premiums relate to insurance coverage for the
calendar years 1991 and 1992. Outstanding balances under the letter
agreement bear interest at the prime rate. In accordance with the letter
agreement the Company repaid $290,000 in 1994 and is required to repay
$100,000 of principal plus interest quarterly through June 1999. The
$400,000 current portion of such obligation is included in "Other accrued
expenses" and the $1,400,000 long-term portion is included in "Other
liabilities". The Company incurred and paid $88,000 of interest related
thereto during 1994.
The Company receives from Triarc certain management services including
legal, accounting, tax, insurance, financial and other management services.
The portion of these costs allocated to the Company under a management
services agreement prior to the Change in Control (the "Former Management
Services Agreement") was $2,033,000 in Fiscal 1993 and $557,000 in Transition
1993 (of which $264,000 and $92,000, respectively, was allocated to
continuing operations and $1,769,000 and $465,000, respectively, was
allocated to discontinued operations). Such costs were allocated to the
Company 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 the Company believes the cost of such services would have been
higher if the Company had operated as an entity unaffiliated with Triarc.
Effective April 23, 1993, the Company 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 the Company 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). Effective January 1, 1994 Triarc significantly
curtailed the services provided to the Company due to the discontinuance of
the majority of the Company's businesses and no longer charges the Company
for management services. During 1994 National Propane commenced providing
management services to the LP Gas operations, the Company's only continuing
business (see the following discussion of the "National Management Services
Agreement"). Management of the Company believes that such allocation method
approximates the costs that would have been incurred if the Company had
operated as an entity unaffiliated with Triarc. Additionally, the Company
was allocated certain uncollectible amounts owed to Triarc for similar
management services to certain former affiliates of the Company amounting to
$1,781,000 in Fiscal 1993 and $150,000 in Transition 1993 (of which $232,000
and $25,000, respectively, was allocated to continuing operations and
$1,549,000 and $125,000, respectively, was allocated to discontinued
operations). These amounts were allocated to the Company principally on the
same basis as the costs of the management services, an allocation method the
management of the Company believes is reasonable. Such costs to the Company
would have been lower if the Company 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" and "Loss from
discontinued operations, net of income taxes" in the accompanying
consolidated statements of operations.
Effective July 1, 1994, the Company entered into a management services
agreement with National Propane (the "National Management Services
Agreement"). The costs charged to the LP Gas operations include a
proportionate share of (i) the amount National Propane is charged under its
management services agreement with Triarc and (ii) National Propane's
corporate administrative costs. Such allocation of the costs is based on the
aggregate average of the ratio of the LP Gas business to the combined LP Gas
business and National Propane for the following: (i) number of districts,
(ii) revenues, (iii) earnings before interest, taxes, depreciation,
amortization and administrative costs, and (iv) gallons sold. The portion of
these costs allocated to LP Gas under the National Management Services
Agreement was $772,000 in 1994 (all of which was allocated to continuing
operations). Management of the Company believes that such allocation method
is reasonable and that the costs approximate those that would have been
incurred if LP Gas had operated as an entity unaffiliated with National
Propane. Such amount is included in "Selling, general and administrative" in
the accompanying consolidated statement of operations.
Until January 31, 1994 the Company, 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 the Company amounted to $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
$137,000 and $27,000, respectively, was allocated to continuing operations
and $918,000 and $136,000, respectively, was allocated to discontinued
operations). Such amounts are included in "Selling, general and
administrative" and "Loss from discontinued operations, net of income taxes"
in the accompanying consolidated statements of 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%
retroactive to October 1992. During Transition 1993, the Company 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" and "Loss from discontinued operations,
net of income taxes" in the accompanying consolidated statement of
operations. During 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 the Company. 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 the Company,
a method management of the Company believes is reasonable. Had the Company
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 the Company believes that its rent costs
on a stand alone basis would have been substantially lower through December
31, 1992.
In addition, the Company incurred interest expense at 18% on unpaid
balances due to Triarc for management services and rent under the Former
Management Services Agreement of $652,000 in Fiscal 1993 and $(68,000) (which
is net of a credit relating to prior years) in Transition 1993 (of which
$85,000 and $(11,000), respectively, was allocated to continuing operations
and $567,000 and $(57,000), respectively, was allocated to discontinued
operations).
Chesapeake Insurance provided certain insurance and reinsurance of
certain risks to the Company until October 1993 at which time Chesapeake
Insurance ceased writing all insurance and reinsurance. The net premium
expense incurred was $10,688,000 in Fiscal 1993 and $9,791,000 in Transition
1993 (of which $1,064,000 and $969,000 respectively, was allocated to
continuing operations and $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 the Company and
also provided claims processing services. The commissions and payments
incurred for such services were $488,000 in Fiscal 1993 and $50,000 in
Transition 1993 (of which $49,000 and $8,000, respectively, was allocated to
continuing operations and $439,000 and $42,000, respectively, was allocated
to discontinued operations).
The Company'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 $3,156,000 in Fiscal 1993, $1,885,000 in Transition
1993 and $61,000 in 1994 (of which $72,000, $56,000 and $47,000,
respectively, was allocated to continuing operations and $3,084,000,
$1,829,000 and $14,000, respectively, was allocated to discontinued
operations).
(18) 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 the Company by Triarc
to terminate the lease on Triarc's existing
corporate facilities $ 2,840
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 1,374
Estimated cost to relocate the Company's corporate
office 500
--------
Total facilities relocation and corporate
restructuring charges (a) 4,714 (1)
Estimated cost allocated to the Company 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 9) 1,500
Loss on disposal of discontinued operations,
without income tax benefit (see Note 4) 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 9) (7,515)
--------
$ 21,336
========
</TABLE>
(1) $782,000 included in "Selling, general and administrative" of
continuing operations and $3,932,000 included in "Loss from
discontinued operations, net of income taxes."
(2) $104,000 included in "Selling, general and administrative" of
continuing operations and $521,000 included in "Loss from
discontinued operations, net of income taxes."
(3) $301,000 included in "Benefit from (provision for) income taxes" of
continuing operations and $4,222,000 included in "Loss from
discontinued operations, net of income taxes."
(4) Included in "Loss from discontinued operations, net of income
taxes."
(5) $100,000 included in "Benefit from (provision for) income taxes" of
continuing operations and $500,000 included in "Loss from
discontinued operations, net of income taxes."
(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 the Company 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 (iii) $500,000 of estimated
direct costs to be incurred by the Company to relocate the
Company's corporate office. All of such charges are related to the
Change in Control described in Note 3. 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 the Company 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 the Company's corporate
headquarters. The Company's allocated cost to terminate the lease
on Triarc's existing corporate facilities ($2,840,000) and the cost
to relocate the Company'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. The
Special 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 $625,000
as an allocation of the cash portion of a success fee payable to
the Special Committee attributable to the 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) The Company'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>
(19) Merger and Litigation Settlement
In December 1990, a purported shareholder derivative suit (the "Ehrman
Litigation") was brought against the Company'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 January 11,
1994 the District Court approved a settlement agreement (the "Settlement
Agreement") with the plaintiff (the "Plaintiff") in the Ehrman Litigation.
On April 14, 1994 the Company's shareholders other than Triarc and its
subsidiaries approved an agreement and plan of merger between the Company and
Triarc (the "Merger") pursuant to which on that date a subsidiary of Triarc
was merged into the Company in accordance with a transaction in which each
holder of shares of Company Common Stock other than Triarc and its
subsidiaries, aggregating a 28.9% minority interest in the Company, received
in exchange for each share of Company Common Stock, 0.8 shares of Triarc's
Class A common stock. Following the Merger, the Company became a wholly-
owned subsidiary of Triarc and its subsidiaries. The Settlement Agreement
also provides that Plaintiff's counsel and financial advisor fees of
$1,250,000 and $50,000, respectively will be paid by Triarc and that Triarc
would be responsible for other expenses relating to the issuance of Triarc
common shares pursuant to the Merger. The Company had previously accrued
such $1,300,000 in 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 the Company
originally anticipated it would be responsible for such fees and expenses.
However, as previously indicated, the Settlement Agreement established that
Triarc and not the Company was responsible for certain of these expenditures
and, accordingly, the Company 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 fair value as of April 14, 1994 of the 2,691,824 shares of Triarc's
Class A common stock issued in the Merger aggregated $52,105,000 (the "Merger
Consideration"), net of $3,750,000 of such consideration representing Ehrman
Litigation settlement costs recorded by Triarc. The Merger was accounted for
by Triarc in accordance with the purchase method of accounting. Triarc had
an excess of $23,888,000 of Merger Consideration over Triarc's minority
interest in the Company of $28,217,000. In accordance with the "push-down"
method of accounting Triarc pushed down $17,004,000 of the excess to the
Company to reflect in the Company's financial statements the increase in
Triarc's basis in the Company (the remaining $6,884,000 of the excess was
pushed down directly to Graniteville reflecting Triarc's increased basis in
Graniteville relating to Triarc's 50% direct ownership therein). The Company
assigned such $17,004,000 excess to its investment in Graniteville
($6,884,000), "Properties" ($4,255,000), investment in the NG&O business sold
in August 1994 (see Note 4) ($2,455,000), "Net noncurrent liabilities of
discontinued operations" ($2,425,000) and "Deferred income taxes"
($1,660,000) with the excess of $7,495,000 recorded as Goodwill. Pro forma
unaudited condensed summary operating results of the Company giving effect to
the Merger as if it had been consummated on March 1, 1993, are as follows (in
thousands):
<TABLE>
Transition
1993 1994
---- ----
<S> <C> <C>
Net sales $ 23,394 $ 28,110
Operating profit 1,359 3,129
Income from continuing operations before
income taxes 263 7,760
Benefit from income taxes 1,195 --
Income from continuing operations 1,458 7,760
</TABLE>
(20) Legal Matters
As a result of certain environmental audits in 1991, the Company became
aware of possible contamination by hydrocarbons and metals at certain sites
of the Company's ice and cold storage operations of the former refrigeration
business and has filed appropriate notifications with state environmental
authorities and in 1994 completed a study of remediation at such sites. The
Company 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 the Company 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 some instances
of certain contaminated soils. Remediation is required at thirteen sites
which were sold to or leased for the purchaser of the ice operations (see
Note 4) including eight sites at which remediation has recently been
completed or is ongoing. Such remediation is being made in conjunction with
the purchaser who is responsible only for payments of up to $1,000,000 of
such remediation costs, consisting of the first and third payments of
$500,000. Remediation will also be required at seven cold storage sites
which were sold to the purchaser of the cold storage operations (see Note 4).
Such remediation is expected to commence in 1995 and will be made in
conjunction with such purchaser who is responsible only for the first
$1,250,000 of such costs. In addition, there are thirteen additional
inactive properties of the former refrigeration business where remediation
has been completed or is ongoing and which have either been sold or are held
for sale separate from the sales of the ice and cold storage operations. Of
these, four were remediated in 1994 at an aggregate cost of $484,000. Based
on consultations with, and certain reports of, environmental consultants and
others, the Company presently estimates that its cost of all of such
remediation and/or removal will approximate $4,600,000 of which $1,500,000,
$2,700,000 (including a 1994 reclassification of $500,000) and $400,000 were
provided prior to Fiscal 1993, in Fiscal 1993 and in 1994, respectively. In
connection therewith, the Company has incurred actual costs of $2,796,000
through December 31, 1994 and has a remaining accrual of $1,804,000, of which
$1,404,000 is reported as "Environmental and other liabilities" and $400,000
is included in "Other accrued expenses" in the net current and non-current
liabilities of the discontinued operations (see Note 4). Based on currently
available information and the current reserve levels, the Company does not
believe that the ultimate outcome of the remediation and/or removal will have
a material adverse effect on its consolidated financial position or results
of 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. In 1990 and 1991 Graniteville provided reports to DHEC
summarizing its required study and investigation of the alleged pollution and
its sources which 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 (i) on human health, (ii) to existing recreational uses or (iii) to
the existing biological communities. In March 1994 DHEC appeared to conclude
that while environmental monitoring at Langley Pond should be continued,
based on currently available information, the most reasonable alternative is
to leave the pond sediments undisturbed and in place. DHEC has requested the
Company submit a proposal by mid April 1995 concerning periodic monitoring of
sediment disposition in the pond and the Company plans on complying with this
request. 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 DHEC's recent conclusion and the absence of
desirable remediation alternatives, 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.
Graniteville owns a nine acre property in Aiken County, South Carolina
(the "Vaucluse Landfill"), which was used as a landfill until 1973. The
Vaucluse Landfill was operated jointly by Graniteville and Aiken County and
may have received municipal waste and possibly industrial waste from
Graniteville as well as sources other than Graniteville. In March 1990, a
"Site Screening Investigation" was conducted by DHEC. In June 1992
Graniteville conducted its initial investigation. The United States
Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental
investigation in February 1994. In response to the ESI, DHEC has indicated
its desire to have a remedial investigation of the Vaucluse Landfill and has
verbally requested that Graniteville submit a proposal to DHEC outlining the
parameters of such an investigation. Since the investigation has not yet
commenced, Graniteville is currently unable to estimate the cost to remediate
the landfill. Such cost could vary based on the actual parameters of the
study. Based on currently available information, the Company does not
believe that the outcome of this matter will have a material adverse effect
on its consolidated results of operations or financial condition.
The Company is also engaged in ordinary routine litigation incidental to
the Company's business. The Company does not believe that the environmental
matters referred to above, as well as such ordinary routine litigation, will
have a material adverse effect on its consolidated financial position or
results of operations.
(21) Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
Three months ended One month
-------------------------- ended
May 31 Aug. 31 Nov. 30 Dec. 31
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Transition 1993:
Net sales $ 7,799 $ 5,308 $ 6,653 $ 3,634
Income (loss) from
continuing operations (893) 2,233 (157) 847
Loss from discontinued
operations (see Note 4) (9,423) (22) (13,910) --
Cumulative effect of
changes in accounting
principles, net of
taxes (see Note 1) 7,515 -- -- --
Net income (loss) (2,801) 2,211 (14,067) 847
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------------------------
Mar. 31 Jun. 30 Sept.30 Dec. 31
------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
1994:
Net sales $ 9,823 $5,795 $5,134 $ 7,358
Income from continuing
operations 3,990 1,347 714 1,909
Net income 3,990 1,347 714 1,909
</TABLE>
(22) Subsequent Event
As set forth in Note 4, the Company's Board of Directors had
previously authorized the sale of the LP Gas business. On March 31, 1995
Public Gas entered into a letter of intent with National Propane, whereby
Public Gas will be merged with and into National Propane during the second
quarter of 1995. In consideration thereof, the Company will receive a
proportionate number of shares of common stock of the surviving corporation
based upon the relative fair values of Public Gas and National Propane.
Since the Company's voting interest will enable it to exert significant
influence over the surviving corporation, the Company has continued to
reflect the LP Gas business as a continuing operation.
<PAGE>
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of SEPSCO, all of whom are U.S. citizens:
Name Age Positions
- ---- --- ---------
Nelson Peltz 52 Chairman and Chief Executive Officer, and Director
Peter W. May 52 President and Chief Operating Officer, and Director
Leon Kalvaria 36 Vice Chairman, and Director
John L. Cohlan 37 Senior Vice President -- Corporate Finance
Joseph A. Levato 54 Executive Vice President and Chief Financial Officer
Francis T. McCarron 38 Senior Vice President -- Taxes
Fred H. Schaefer 50 Vice President and Chief Accounting Officer
Harold D. Kingsmore 62 President and Chief Executive Officer of Graniteville
Ronald D. Paliughi 51 President and Chief Executive Officer
of National Propane and Public Gas
Each of the persons identified above first became an officer and/or
director of SEPSCO in April 1993, in connection with the Reorganization. Set
forth below is certain additional information concerning the persons listed
above.
Nelson Peltz has been a director and Chairman of the Board and Chief
Executive Officer of SEPSCO and of Triarc since April 23, 1993. Since April
23, 1993 he has also been a director and Chairman of the Board and Chief
Executive Officer of certain of Triarc's other subsidiaries, including RCAC.
Mr. Peltz has also been a director of National Propane Corporation, another
Triarc subsidiary, since April 23, 1993, and from April 23, 1993 until
January 1994 he was a director and Chairman of the Board and Chief Executive
Officer of Wilson Brothers ("Wilson"), a company engaged in the specialty
decoration of glass and ceramic items and the design, manufacture and
servicing of overhead industrial cranes. He is also a general partner of DWG
Acquisition, whose principal business is ownership of securities of Triarc.
From its formation in January 1989 until April 23, 1993, Mr. Peltz was
Chairman and Chief Executive Officer of Trian Group, Limited Partnership
("Trian"), which provided investment banking and management services for
entities controlled by Mr. Peltz and Mr. May. From 1983 to December 1988, he
was Chairman and Chief Executive Officer and a director of Triangle
Industries, Inc. ("Triangle"), which, through wholly owned subsidiaries, was,
at that time, a manufacturer of packaging products, copper electrical wire
and cable and steel conduit and currency and coin handling products. He was
Chairman and Chief Executive Officer and a director of Avery, Inc. ("Avery")
from prior to 1987 until October 1992. Until the October 1989 sale of
Uniroyal Chemical Holding Company, Avery was primarily engaged in the
manufacture and sale of specialty chemicals. From November 1989 through May
1992, Mr. Peltz was a director of Mountleigh Group plc, a British property
trading and retailing company ("Mountleigh"). He served in various executive
capacities, including Executive Chairman, of Mountleigh from November 1989
until October 1991.
Peter W. May has been a director and President and Chief Operating
Officer of SEPSCO and of Triarc since April 23, 1993. Since April 23, 1993 he
has also been a director and President and Chief Operating Officer of certain
of Triarc's other subsidiaries, including RCAC. Mr. May has also been a
director of National Propane Corporation since April 23, 1993, and from April
23, 1993 until January 1994 he was a director and President and Chief
Operating Officer of Wilson. He is also a general partner of DWG Acquisition.
From its formation in January 1989 until April 23, 1993, Mr. May was
President and Chief Operating Officer of Trian. He was President and Chief
Operating Officer and a director of Triangle from 1983 until December 1988.
Mr. May was President and Chief Operating Officer and a director of Avery
from prior to 1987 until October 1992. From November 1989 through May 1992,
Mr. May was a director of Mountleigh and he served as a Joint Managing
Director of Mountleigh from November 1989 until October 1991. On April 29,
1993, Mr. May was also named a director of The Leslie Fay Companies, Inc.
following its filing on April 5, 1993 for protection under Chapter 11 of the
United States Bankruptcy Code.
Leon Kalvaria has been a director and Vice Chairman of SEPSCO and of
Triarc since April 23, 1993. Since April 23, 1993, he has also been a
director and Vice Chairman of certain of Triarc's other subsidiaries,
including RCAC. Mr. Kalvaria has also been a director of National Propane
Corporation since April 23, 1993, and from April 23, 1993 until January 1994
he was a director and Vice Chairman of Wilson. Since January 1995, Mr.
Kalvaria has been a limited partner of DWG Acquisition. He joined Trian in
January 1991 and was Vice Chairman of Trian from April 1992 until April 23,
1993. Prior to joining Trian, Mr. Kalvaria was employed by CS First Boston,
an investment banking firm ("First Boston"), for more than 10 years. Mr.
Kalvaria was Managing Director of the Mergers and Acquisitions Department of
First Boston from 1989 to 1991.
John L. Cohlan has been Senior Vice President -- Corporate Finance of
SEPSCO and of Triarc since January 1994. He has also been Senior Vice
President -- Corporate Finance of certain of Triarc's other subsidiaries,
including RCAC, since January 1994. Prior thereto, he had served as Senior
Vice President -- Corporate Development of SEPSCO, Triarc and such
subsidiaries since April 24, 1993. Before joining Triarc, he was a Senior
Vice President of Trian from July 1992 until April 24, 1993. From January
1992 until May 1992, Mr. Cohlan was associated with Mountleigh. From 1989
until 1991, he was a principal of The Palmer Group, Inc., a firm specializing
in corporate restructurings, particularly in the hotel industry. From 1987
until 1989, Mr. Cohlan was Vice President -- New Business Development of VMS
Realty Partners, a real estate concern.
Joseph A. Levato has been Executive Vice President and Chief Financial
Officer of SEPSCO and of Triarc since April 24, 1993. He has also been
Executive Vice President and Chief Financial Officer of certain of Triarc's
other subsidiaries, including RCAC, since April 24, 1993. Prior thereto, he
was Senior Vice President and Chief Financial Officer of Trian from January
1992 until April 24, 1993. From 1984 to January 1989, he served as Senior
Vice President and Chief Financial Officer of Triangle and served as Senior
Vice President and Chief Financial Officer of Avery from 1986 until 1989.
Francis T. McCarron has been Senior Vice President -- Taxes of SEPSCO
and Triarc since April 24, 1993. He has also been Senior Vice President --
Taxes of certain of Triarc's other subsidiaries, including RCAC and National
Propane Corporation, since April 24, 1993. Prior thereto, he was Vice
President -- Taxes of Trian from its formation in January 1989 until April
24, 1993. He joined Triangle in February 1987 and served as Director of Tax
Planning & Research until January 1989. He also served as Vice President --
Taxes of Avery from 1989 until 1992.
Fred H. Schaefer has been Vice President and Chief Accounting Officer
of SEPSCO and of Triarc since April 24, 1993. He has also been Vice President
and Chief Accounting Officer of certain of Triarc's other subsidiaries,
including RCAC and National Propane Corporation, since April 24, 1993. Prior
thereto, he was Vice President and Chief Accounting Officer of Trian from its
formation in January 1989 until April 24, 1993. Mr. Schaefer joined Triangle
in 1980 and served in various capacities in the accounting department,
including Vice President -- Financial, until January 1989 and served as Vice
President -- Financial Reporting of Avery from 1986 until 1992.
Harold D. Kingsmore has been President and Chief Executive Officer of
Graniteville since April 24, 1993. For more than five years prior thereto, he
was Executive Vice President and Chief Operating Officer of Graniteville. He
is a director of Palfed, Inc., a thrift institution. Mr. Kingsmore was a
director of Triarc from 1988 until June 1993.
Ronald D. Paliughi has been President and Chief Executive Officer of
National Propane and Public Gas since April 24, 1993. He was engaged in
private research and consulting services from 1992 until April 1993. During
1991, he served as a United States Army Officer in Operation Desert Storm.
From 1987 to 1990, Mr. Paliughi was Senior Vice President -- Western
Operations of AP Propane (AmeriGas), one of the largest LP gas companies in
the United States and a subsidiary of UGI Corporation. During 1986, Mr.
Paliughi was director of retail operations of CalGas Corporation, a division
of Dillingham Corporation, the fourth largest LP gas company in the United
States, and for more than 14 years prior thereto, he held various positions
with Vangas, Inc., last serving as Senior Vice President -- General Manager.
Each director has been elected to serve until the next annual meeting
of SEPSCO's stockholders and until his successor is duly elected and
qualified or until his prior death, resignation or removal.
The term of office of each executive officer is until the
organizational meeting of the SEPSCO's Board of Directors following the next
annual meeting of SEPSCO's stockholders and until his successor is elected
and qualified or until his prior death, resignation or removal.
COMPLIANCE WITH SECTION 16(a) OF THE 1934 ACT
Until the effective date of the Merger (April 14, 1994), SEPSCO and its
directors, executive officers and persons who owned more than 10% of SEPSCO's
common stock were required to comply with Section 16(a) of the 1934 Act.
Section 16(a) of the 1934 Act requires SEPSCO's directors, executive
officers, and persons who own more than 10% of SEPSCO's common stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC"), and the PSE. Directors,
executive officers and greater than ten percent shareowners are required by
the SEC regulations to furnish SEPSCO with copies of all Forms 3, 4 and 5
they file.
Based solely on SEPSCO's review of the copies of such forms it has
received, or written representations from certain reporting persons that no
Form 5s were required for these persons, SEPSCO believes that all its
directors, executive officers, and greater than 10% beneficial owners
complied with all filing requirements applicable to them with respect to the
period from January 1, 1994 until April 14, 1994.
ITEM 11. Executive Compensation.
COMPENSATION OF EXECUTIVE OFFICERS
A new chief executive officer of SEPSCO was elected in connection with
the Reorganization, which was consummated on April 23, 1993. At the same
time, SEPSCO's former chief executive officer and all other executive
officers of the Company, other than Mr. Kingsmore and Mr. Coppersmith (who
resigned as an officer and employee on August 10, 1993), ceased to be
executive officers of SEPSCO and/or its subsidiaries and other new executive
officers of SEPSCO were elected. Prior to such date, neither SEPSCO's new
chief executive officer nor any of its other new executive officers received
any compensation from SEPSCO or Triarc. Therefore, the only information with
respect to annual salaries for Fiscal 1993 set forth in the Summary
Compensation Table below is presented with respect to Mr. Kingsmore and Mr.
Coppersmith. The Summary Compensation Table does set forth cash bonuses
awarded during Fiscal 1993 and in respect of performance during 1993, as well
as non-cash awards granted during Fiscal 1993 under Triarc's 1993 Equity
Participation Plan (the "Equity Participation Plan") to SEPSCO's chief
executive officer and to four of the other executive officers of SEPSCO and
its subsidiaries who constituted SEPSCO's most highly compensated executive
officers during Fiscal 1994. The individuals whose names appear in the
Summary Compensation Table are sometimes referred to collectively as the
"Named Officers." Messrs. Peltz, May and Kalvaria serve as directors and
officers of Triarc and several of its subsidiaries, including the Company.
All compensation set forth in the Summary Compensation Table for Messrs.
Peltz, May and Kalvaria was paid by Triarc and represents amounts paid for
services rendered to Triarc and its subsidiaries, including the Company. Mr.
Levato serves as an officer of Triarc and several of its subsidiaries,
including the Company. All compensation set forth in the Summary
Compensation Table for Mr. Levato was paid by Triarc and represents amounts
paid for services rendered to Triarc and its subsidiaries, including the
Company. All compensation for Mr. Coppersmith was paid by SEPSCO; and Mr.
Kingsmore was compensated by Graniteville. All non-cash awards granted to
any Named Officer were made by Triarc. Additional information with respect
to the compensation arrangements for the new chief executive officer and the
Named Officers is set forth below under " -- Employment Arrangements with
Executive Officers."
<PAGE>
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------- ----------------------
-------------------- --------------------------
Awards Payouts
----------------- ---------------
Securities
Other Restricted Underlying All
Name and Annual Stock Options/ LTIP Other
Principal Compensation Award(s) SARs Payouts Compensation
Position Period (1) Salary($) Bonus($) ($) (#)(2) (#)(2)(3) ($) ($)
- --------- ---- ------ ------ ------ ----- --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson Peltz(4) 1994 1 --- 913,406(7) --- 2,340,000 --- ---
Chairman and TP 1 --- --- --- 675,000 --- ---
Chief Executive 1993 --- --- --- --- --- --- ---
Officer of
SEPSCO
Peter W. May(4) 1994 1 --- 97,019(8) --- 1,560,000 --- ---
President and TP 1 --- --- --- 450,000 --- ---
Chief Operating 1993 --- --- --- --- --- --- ---
Officer of
SEPSCO
Leon Kalvaria(4) 1994 500,000 725,000 409,294(9) --- 430,000 --- 2,281(12)
Vice Chairman TP 333,3361,350,000(6) 520,181(9) 42,500 190,000 --- 1,088(12)
of SEPSCO 1993 --- --- --- --- --- --- ---
Joseph A. Levato(4) 1994 306,250 315,000 (11) --- 30,000 --- 2,281(12)
Executive Vice TP 200,000 350,000 (11) 25,000 80,000 --- 590(12)
President and 1993 --- --- --- --- --- --- ---
Chief Financial
Officer of
SEPSCO
Harold D. Kingsmore 1994 400,000 450,000 (11) --- 22,000 --- 3,750(12)
President and TP 266,666 450,000 --- --- 10,000 --- ---
Chief Executive 1993 300,000 1,300,000 (11) 50,000 50,000 --- ---
Officer of 1992 300,000 700,000 (11) --- --- --- 11,903(12)
Graniteville
Jack Coppersmith(5) 1994 376,884 --- --- --- --- --- ---
Former Executive TP 61,151 --- --- --- 25,000(5) --- ---
Vice President 1993 236,715 350,000 (11) --- --- --- ---
-- Operations
of SEPSCO
<PAGE>
<PAGE>
<FN>
(1) Information set forth opposite the letter "TP" relates to Transition
1993 (i.e., the ten month period ended December 31, 1993), while
information set forth opposite 1994 relates to Fiscal 1994 (the twelve-
month period ended December 31, 1994), the information set forth
opposite 1993 relates to Fiscal 1993 (the twelve-month period ended
February 28, 1993) and the information set forth opposite 1992 relates
to Fiscal 1992 (the twelve-month period ended February 28, 1992).
(2) All restricted stock awards and stock option grants were made pursuant
to the Equity Participation Plan. The restricted stock awards are
described under " -- Employment Arrangements with Executive Officers --
Equity Participation Plan" below. Based upon the closing price of
Triarc's Class A Common Stock on the New York Stock Exchange, the
principal market for Triarc's Class A Common Stock since November 17,
1993 ("NYSE"), of $11.75 on December 30, 1994 (the last trading day of
Fiscal 1994), the number and value of the aggregate restricted stock
holdings of the Named Officers are as follows: Mr. Kalvaria -- 42,500
shares with a value of $499,375; Mr. Levato -- 25,000 shares with a
value of $293,750; and Mr. Kingsmore -- 50,000 shares with a value of
$587,000. The option grants awarded in respect of Fiscal 1994 are
described below under " -- Options Granted In Respect of Fiscal 1994."
All other option grants are described in footnote 3 below.
(3) The options granted in respect of Transition 1993 were awarded on two
occasions. On April 24, 1993, the following options (the "April
Options") were granted: Mr. Peltz was awarded options to purchase
600,000 shares of Triarc's Class A Common Stock; Mr. May was granted
options to purchase 400,000 shares of Triarc's Class A Common Stock;
Mr. Kalvaria was awarded options to purchase 150,000 shares of Triarc's
Class A Common Stock; each of Mr. Kingsmore and Mr. Levato was awarded
options to purchase 50,000 shares of Triarc's Class A Common Stock; and
Mr. Coppersmith was awarded options to purchase 25,000 shares of
Triarc's Class A Common Stock. Each April Option has an exercise price
of $18.00 per share, which exercise price is equal to the closing price
of Triarc's Class A Common Stock on the American Stock Exchange, (the
principal market for Triarc's Class A Common Stock until November 17,
1993), on April 27, 1993, the first day of trading after the options
were granted. The April Options expire on April 24, 2003.
In addition to the April Options, on March 1, 1994 additional
options (the "March Options") were granted to the following, in each
case in respect of performance during Transition 1993: Mr. Peltz was
awarded options to purchase 75,000 shares of Triarc's Class A Common
Stock; Mr. May was granted options to purchase 50,000 shares of
Triarc's Class A Common Stock; Mr. Kalvaria was awarded options to
purchase 40,000 shares of Triarc's Class A Common Stock; Mr. Levato was
awarded options to purchase 30,000 shares of Triarc's Class A Common
Stock; and Mr. Kingsmore was awarded options to purchase 30,000 shares
of Triarc's Class A Common Stock. Each March Option has an exercise
price of $21.00 per share, which exercise price is equal to the closing
price of Triarc's Class A Common Stock on the NYSE on the grant date.
The March Options expire on March 1, 2004.
One-third of each April Option and one-third of each March Option
granted to the Named Officers other than Mr. Kingsmore will vest on
each of the first, second and third anniversaries of the dates of their
respective grants, and each such option will be exercisable at any time
between the date of vesting and the tenth anniversary of the dates of
their respective grants. One-third of the April Option and one-third
of the March Option granted to Mr. Kingsmore will vest on each of the
third, fourth and fifth anniversaries of the dates of their respective
grants, and each such option will be exercisable at any time between
the date of vesting and the tenth anniversary of the dates of their
respective grants.
(4) Was not elected to be a director and/or executive officer of SEPSCO
until Transition 1993, and therefore did not receive any amount of
compensation during Fiscal 1993.
(5) Mr. Coppersmith resigned as an officer and employee of SEPSCO,
effective August 10, 1993, and as a result, forfeited his options.
(6) Includes a discretionary bonus in the amount of $800,000 awarded on
April 24, 1993 in respect of services rendered in connection with the
Refinancing and Reorganization. See " -- Employment Arrangements with
Executive Officers," below.
(7) Includes relocations costs of $736,872 in 1994 and $176,534 for charges
relating to use of corporate aircraft.
(8) Represents charges relating to use of corporate aircraft.
(9) Includes relocation costs of $396,096 and $519,323, in 1994 and 1993,
respectively.
(10) Perquisites and other personal benefits did not exceed the lesser of
either $50,000 or 10% of the total annual salary and bonus reported
under the headings of "Salary" and "Bonus."
(11) Perquisites and other personal benefits did not exceed the lesser of
either $50,000 or 10% of the total annual salary and bonus reported
under the headings of "Salary" and "Bonus."
(12) Represents amounts contributed to 401(k) plans by Triarc and
subsidiaries on behalf of the Named Officer.
(13) Represents distributions under the Graniteville Company Retirement
Savings Plan.
</TABLE>
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
NELSON PELTZ AND PETER W. MAY
Since the Reorganization, Nelson Peltz and Peter W. May have been
serving Triarc as its Chairman and Chief Executive Officer and its President
and Chief Operating Officer, respectively, and each of them currently is
receiving an annual base salary of $1.00. In addition, Messrs. Peltz and May
participate in the incentive compensation and welfare and benefit plans made
available to Triarc's corporate officers, including the Equity Participation
Plan described below.
In April 1994, the Compensation Committee of Triarc's Board of
Directors approved, subject to approval by Triarc's stockholders of
appropriate amendments to the Equity Participation Plan (which amendments
were approved by Triarc's stockholders on June 9, 1994), the grant of
"performance stock options" for an aggregate of 3,500,000 shares of Triarc's
Class A Common Stock to Messrs. Peltz and May. These options were granted in
lieu of base salary, annual performance bonuses and long term compensation
for s six-year period commencing April 1993. For additional information
regarding the terms of the "performance stock options," see "Options Granted
in Respect of Fiscal 1994" below.
LEON KALVARIA
Since the Reorganization, Leon Kalvaria has been serving Triarc as its
Vice Chairman and is currently receiving an annual base salary of $500,000.
Effective November 1, 1993, Mr. Kalvaria entered into an employment agreement
with Triarc (the "Kalvaria Employment Agreement") having an initial term
which expires on December 31, 1996 but which automatically extends for
successive three year periods on January 1 of each year, commencing January
1, 1995, unless, not later than one year preceding the date of any such
extension, either party notifies the other that it does not wish to have the
term so extended. The Kalvaria Employment Agreement provides for an annual
salary of $500,000. In addition, the Kalvaria Employment Agreement provides
that Mr. Kalvaria will be entitled to receive a bonus payment in each full
calendar year of the agreement, commencing in 1994, in an amount not less
than the amount by which the salary and other cash payments made to him
during such year pursuant to any long or short-term management incentive plan
is less than $800,000. The Kalvaria Employment Agreement also provides that
if Mr. Kalvaria dies during the term of the agreement, his legal
representative will be entitled to receive from Triarc an amount calculated
at an annual rate of $800,000 for the remaining term of the agreement if
Triarc had been able to procure, at a reasonable rate, term insurance on Mr.
Kalvaria's life to pay such obligation, or, if Triarc had not been able to
procure such insurance, an amount calculated at the annual rate of $800,000
for the three-month period following Mr. Kalvaria's death. Triarc has
obtained such insurance to fund this obligation through the year 2000 at an
annual premium of approximately $3,000. The Kalvaria Employment Agreement
also provides that if Triarc terminates the agreement as a result of Mr.
Kalvaria becoming disabled, Triarc will continue to pay Mr. Kalvaria at the
annual rate of $800,000 for an eighteen month period following such
termination. Pursuant to the Kalvaria Employment Agreement, if Mr.
Kalvaria's employment with Triarc terminates for any reason other than for
cause (as defined in the Kalvaria Employment Agreement), all restricted stock
awards granted to Mr. Kalvaria (which are described below) will immediately
vest in their entirety and all stock options granted to Mr. Kalvaria will
vest immediately in their entirety and remain exercisable for a period of one
year following the date of such termination. In addition, if Mr. Kalvaria's
employment terminates for any reason other than for cause, certain
"performance stock options" granted to Mr. Kalvaria will immediately vest in
their entirety and will remain exercisable for a period of 90 days following
the date of such termination. For additional information regarding the terms
of such "performance stock options," see "Options Granted In Respect of
Fiscal 1994" below.
Triarc and Mr. Kalvaria are parties to an agreement (the "Relocation
Agreement") pursuant to which Mr. Kalvaria relocated to Florida in 1993 in
order to work in Triarc's offices which were then located in West Palm Beach.
In addition to providing certain standard relocation benefits, pursuant to
the Relocation Agreement, Triarc guaranteed a $3 million bank loan (the "Bank
Loan") secured by a first mortgage on Mr. Kalvaria's new Florida residence
(the "Florida Property"), and Triarc made loans aggregating $500,000 to Mr.
Kalvaria in connection with his purchase of the Florida Property. In
connection with the June 1994 relocation of Triarc's corporate headquarters
to New York City, Triarc agreed to reimburse Mr. Kalvaria for the costs
incurred by him (including certain expenses relating to his New York
apartment) as well as for certain tax effects of such relocation payments.
Furthermore, in connection with the 1994 relocation, Triarc entered into an
agreement with a relocation company with respect to the sale of the Florida
Property. Pursuant to that agreement, title to the Florida Property was
transferred to the relocation company, Mr. Kalvaria received from the
relocation company an amount in cash equal to his equity in the Florida
Property and the relocation company assumed responsibility for the sale of
the Florida Property. In connection therewith, Triarc agreed to pay
approximately $30,000 per month (including amounts with respect to interest
on the Bank Loan and on the advance by the relocation company of Mr.
Kalvaria's equity in the Florida Property) to the relocation company to
maintain the Florida Property until it was sold. In February 1995, the
Florida Property was sold to an unaffiliated party at a profit (which Triarc
retained), and Triarc was released from its guarantee of the Bank Loan. In
connection with such sale, Triarc paid a sales commission and relocation
company fees of approximately $230,000, all of which was paid out of the sale
proceeds.
HAROLD D. KINGSMORE
On April 24, 1993, Graniteville and Harold D. Kingsmore entered into an
employment agreement (the "Kingsmore Employment Agreement") providing for Mr.
Kingsmore's employment as President and Chief Executive Officer of
Graniteville. The term of the agreement commenced May 1, 1993 and will
continue (unless otherwise terminated as provided in the Kingsmore Employment
Agreement) until December 31, 1996, subject to renewal for an additional
three years unless either party notifies the other that it does not wish to
renew.
Pursuant to the Kingsmore Employment Agreement, Mr. Kingsmore receives
an annual base salary of $400,000. Mr. Kingsmore also will be eligible to
receive an annual cash incentive bonus under Graniteville's annual cash
incentive plan (described in Triarc's 10-K), cash compensation under
Graniteville's mid-term cash incentive plan (described in Triarc's 10-K) and
additional compensation under the Equity Participation Plan. To compensate
for the fact that no distribution will be made under the mid-term plan until
completion of the first three year performance cycle, the Kingsmore
Employment Agreement provides that Mr. Kingsmore was to receive cash
compensation of at least $850,000 with respect to his services during 1994
and will receive cash compensation of at least $850,000 with respect to his
services during 1995, in each case, exclusive of any accrual with respect to
such years under the mid-term plan. Mr. Kingsmore's annual base salary will
be reviewed annually for possible increase, but not decrease, by
Graniteville's Board of Directors.
EQUITY PARTICIPATION PLAN
The Equity Participation Plan was adopted on April 24, 1993, amended on
April 21, 1994, and, as amended, was approved by Triarc's shareholders on
June 9, 1994. It expires by its terms on April 24, 1998. The plan provides
for the grant of options to purchase Triarc's Class A Common Stock, tandem
stock appreciation rights ("SARs"), restricted shares of Triarc's Class A
Common Stock, and, to non-employee directors of Triarc, at their option,
shares of Triarc's Class A Common Stock in lieu of annual retainer fees
and/or Triarc's Board of Directors or committee meeting attendance fees that
would otherwise be payable in cash. Directors, selected officers and key
employees of, and key consultants to, Triarc and its subsidiaries, including
SEPSCO, are eligible to participate in the plan. The plan is being
administered by the Compensation Committee of the Board of Directors of
Triarc, which will determine from time to time to grant options, SARs and
restricted stock.
On April 24, 1993, the following awards (each, an "April RSA") were
made under the Equity Participation Plan: Mr. Kalvaria was granted 30,000
restricted shares of Triarc's Class A Common Stock; Mr. Levato was granted
25,000 restricted shares of Triarc's Class A Common Stock; and Mr. Kingsmore
was granted 50,000 restricted shares of Triarc's Class A Common Stock. In
addition, on March 1, 1994, additional 12,500 restricted shares of Triarc's
Class A Common Stock (each, a "March RSA") were granted to Mr. Kalvaria in
respect of his performance during Transition 1993 and to incentivize his
future performances. All of the April RSAs will vest on December 31, 1996,
and all of the March RSAs will vest on January 1, 1997.
MISCELLANEOUS
Messrs. Kingsmore and Kalvaria are entitled pursuant to their
respective employment agreements to participate in other long-term
compensation and life insurance, disability and medical plans made generally
available to senior officers of Graniteville and Triarc, respectively. Mr.
Kingsmore will also be provided the use of a car and other customary benefits
during the term of his employment agreement. Pursuant to Triarc's
employment-related relocation policy, which is applicable to each of the
Named Officers and other senior officers of Triarc, an officer's compensation
will be increased to the extent necessary to cause all employment-related
relocation expenses to be fully reimbursed on a "after tax" basis.
Mr. Coppersmith resigned as an officer and employee of SEPSCO effective
August 10, 1993 and entered into a consulting agreement with SEPSCO pursuant
to which he will render consulting services on a part-time basis for a fee of
$30,000 per month until May 1, 1995. At the end of the consulting period, Mr.
Coppersmith may receive a discretionary bonus based upon the value of the
services rendered by him.
OPTIONS GRANTED IN RESPECT OF FISCAL 1994
The following table sets forth certain information with respect to
options to purchase shares of Triarc's Class A Common Stock granted to the
Named Officers in respect of Fiscal 1994. No tandem or freestanding SARs were
granted to any of the Named Officers, and no stock options were exercised by
any Named Officer during Fiscal 1994.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Grant Date Value
---------------- ----------------
% of Total
Options
Granted to
Number of Employees Exercise Grant
Securities in or Date
Underlying Respect of Base Present
Options/SARs Fiscal Price Expiration Value
Name Granted(#) 1994 ($/Sh) Date ($)(1)
- ---- ------------- ------- ----- --------- ------------
Nelson Peltz 2,100,000(2) 45% 20.125 4/21/04 19,187,175(3)
240,000(4) 10.750 11/30/04 1,503,350
Peter W. May 1,400,000(2) 30% 20.125 4/21/04 12,791,450(3)
160,000(4) 10.750 11/30/04 1,002,240
Leon Kalvaria 350,000(2) 8% 20.125 4/21/04 3,197,862(3)
80,000(4) 10.750 11/30/04 501,110
Joseph A. Levato 30,000(4) * 10.750 11/30/04 187,919
Harold D. Kingsmore 22,000(4) 1% 10.750 11/30/04 133,799
- --------------
* Less than 1%
(1) Except with respect to the performance stock options (see footnote 3
below), these values were calculated using a Black-Scholes option
pricing model. The actual value, if any, that an executive may realize
will depend on the excess, if any, of the stock price over the exercise
price on the date the options are exercised, and no assurance exists
that the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. The following assumptions were
used in the calculations:
(a) assumed option term of 7.5 years;
(b) stock price volatility factor of 0.4432;
(c) 7.5% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These performance stock options were granted on April 21, 1994 and have
an exercise price equal to the closing price of Triarc's Class A Common
Stock on the NYSE on the grant date. The options vest and become
exercisable as follows: if the closing price of a share of Triarc's
Class A Common Stock is at least $27.1875 per share for 20 out of 30
consecutive trading days ending on or prior to March 30, 1999, each
option will vest and become exercisable as to one-third of the shares
subject to the option; if the closing price of a share of Triarc's
Class A Common Stock is at least $36.25 per share for 20 out of 30
consecutive trading days ending on or prior to March 30, 2000, each
option will vest and become exercisable as to one-third of the shares
subject to the option; and if the closing price of a share of Triarc's
Class A Common Stock is at least $45.3125 per share for 20 out of 30
consecutive trading days ending on or prior to March 30, 2001, each
option will vest and become exercisable as to one-third of the shares
subject to the option. In addition to early vesting in the event such
closing price levels are attained, each such option will also vest and
become exercisable after 9 years and 6 months even if Triarc's Class A
Common Stock does not so appreciate. These options will be exercisable
at any time between the date of vesting and the tenth anniversary of
the date of grant.
(3) These values were calculated using the Binomial Option Pricing Model,
which provides a better methodology for developing a present value for
performance stock options than the Black-Scholes Model. The options
will become exercisable and have actual value to the executive only if
the performance criteria are achieved. The actual value, if any, that
any executive may realize will depend on the excess, if any, of the
stock price over the exercise price on the date the options are
exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Binomial Option
Pricing Model. The following assumptions were used in the
calculations:
(a) assumed option term of 7.5 years;
(b) stock price volatility factor of 0.4758;
(c) 6.5% annual discount rate; and
(d) no dividend payment.
(4) These options were granted on November 30, 1994 and have an exercise
price equal to the closing price of Triarc's Class A Common Stock on
the NYSE on the grant date. One-third of the options granted to the
Named Officers other than Mr. Kingsmore vested on the date of the
grant, and one-third of the options granted will vest on each of the
first and second anniversaries of the date of grant. One-third of the
options granted to Mr. Kingsmore will vest on each of the first, second
and third anniversaries of the date of grant. The options will be
exercisable at any time between the date of vesting and the tenth
anniversary of the date of grant.
OPTION VALUES AT END OF FISCAL 1994
The following table sets forth certain information concerning the value
at the end of Fiscal 1994 of unexercised in-the-money options to purchase
shares of Triarc's Class A Common Stock granted to the Named Officers and
outstanding as of the end of Fiscal 1994. No SARs have been granted to any of
the Named Officers.
Number of
Securities Value of
Underlying unexercised
Unexercised In-the-Money
Options Options
at Fiscal 1994 at Fiscal 1994
Shares End(#) End ($)(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
---- ----------- ----------- ------------- --------------
Nelson Peltz -0- -0- 280,000/2,735,00 80,000/160,000
Peter W. May -0- -0- 186,666/1,823,334 53,333/106,667
Leon Kalvaria -0- -0- 76,667/ 543,333 26,667/ 53,333
Joseph A. Levato -0- -0- 26,667/ 83,333 10,000/20,000
Harold D. Kingsmore -0- -0- -0-/ 82,000 -0-/22,000
- -------------
(1) On December 30, 1994, the last trading day of Fiscal 1994, the closing
price of Triarc's Class A Common Stock on the NYSE was $11.75.
COMPENSATION OF DIRECTORS
No director of SEPSCO currently receives any compensation for serving
as a director of SEPSCO.
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management.
All of the issued and outstanding shares of common stock of SEPSCO are
directly owned by Triarc. The Board of Directors of Triarc consists of
thirteen directors. For information regarding certain arrangements and
undertakings with respect to the composition of the Board of Directors of
Triarc, see Triarc's 10-K.
The following table sets forth the beneficial ownership as of March 31,
1995 by each person known by SEPSCO to be the beneficial owner of more than
5% of the outstanding shares of Triarc's Class A Common Stock (constituting
the only class of voting capital stock of Triarc).
Amount and
Name and Address of Nature Percent
Beneficial Owner of Ownership(1) of Class
- ----------------- ------------------ --------
DWG Acquisition.................... 5,982,867 shares(4) 25.0%
1201 North Market Street
Wilmington, DE 19801
Nelson Peltz....................... 6,514,867 shares(2)(3)(4)(6) 26.7%
900 Third Avenue
New York, NY 10022
Peter W. May....................... 6,346,333 shares(2)(4)(7) 26.2%
900 Third Avenue
New York, NY 10022
Leon Kalvaria...................... 182,500 shares(5) *
900 Third Avenue
New York, NY 10022
- ----------
* Less than 1%
(1) Except as otherwise indicated, each person has sole voting and
dispositive power with respect to such shares.
(2) Includes 5,982,867 shares held by DWG Acquisition of which Mr. Peltz
and Mr. May are the sole general partners. Effective January 1, 1995,
Mr. Kalvaria was admitted as a limited partner of DWG Acquisition and
as such will receive 5% of the net profits realized by DWG Acquisition
from the sale of the Triarc shares owned by DWG Acquisition, determined
in accordance with the partnership agreement of DWG Acquisition.
(3) Includes 100 shares owned by Mr. Peltz's minor son, as to which Mr.
Peltz disclaims beneficial ownership.
(4) On April 23, 1993, DWG Acquisition acquired 5,982,867 shares of
Triarc's Class A Common Stock from the Posner Entities, for an
aggregate purchase price of $71,794,404 (the "Purchase Price"). In
addition, as part of the Reorganization on April 23, 1993, Triarc
exchanged the remaining 5,982,866 shares of Triarc common stock owned
by the Posner Entities for an equal number of shares of Triarc's non-
voting, cumulative convertible redeemable preferred stock, par value
$.10 per share ("Triarc's Redeemable Convertible Preferred Stock"),
having a stated value of $12.00 per share or an aggregate stated value
of $71,794,392. On January 10, 1995, such shares of Triarc's
Redeemable Convertible Preferred Stock were converted into 4,985,722
shares of Triarc's non-voting Class B Common Stock. For additional
information regarding this conversion, see "Item 1. Business --
Introduction -- Posner Settlement" in Triarc's 10-K.
The Company is informed that DWG Acquisition has pledged an aggregate
of 5,075,000 shares of Triarc's Class A Common Stock (the "Pledged
Shares") to two financial institutions on behalf of Messrs. Peltz and
May to secure certain loans made to them by such financial institutions
in connection with the Equity Transactions; the loan documentation in
connection with such loans contains customary provisions concerning the
maturity of the loans and other provisions with respect thereto and
with respect to the Pledged Shares.
(5) Represents 42,500 restricted shares granted under the Equity
Participation Plan and options to purchase 140,000 shares of Triarc's
Class A Common Stock which have vested or will vest within 60 days of
March 31, 1995. Effective January 1, 1995, Mr. Kalvaria was admitted
as a limited partner of DWG Acquisition and as such will receive a
percentage of the net profits realized by DWG Acquisition from the sale
of the Triarc shares owned by DWG Acquisition, determined in accordance
with the partnership agreement of DWG Acquisition.
(6) Includes options to purchase 505,000 shares of Triarc's Class A Common
Stock which have vested or will vest within 60 days of March 31, 1995.
(7) Includes options to purchase 336,666 shares of Triarc's Class A Common
Stock which have vested or will vest within 60 days of March 31, 1995.
The foregoing table does not include the 5,997,622 shares of Triarc's
non-voting Class B Common Stock owned by Victor Posner and his affiliates.
The shares of Triarc's Class B Common Stock can be converted without
restriction into an equal number of shares of Triarc's Class A Common Stock
following a transfer to a non-affiliate of Victor Posner. Triarc has certain
rights of first refusal if such shares are sold to an unaffiliated third
party. If the 5,997,622 currently outstanding shares of Triarc's Class B
Common Stock were converted into shares of Triarc's Class A Common Stock,
such shares would constitute approximately 20.1% of the then outstanding
shares of Triarc's Class A Common Stock. Except for the arrangements
relating to the Pledged Shares described in note (4) to the foregoing table,
there are no arrangements known to SEPSCO the operation of which may at a
subsequent date result in a change in control of Triarc and therefore a
change in control of SEPSCO.
Except for (a) the shares of Triarc stock beneficially owned by the
Named Officers, which share ownerships are set forth in this Item 12 above,
(b) 42,500 restricted shares of Triarc's Class A Common Stock awarded to Mr.
Kalvaria, (c) 12,500 restricted shares of Triarc's Class A Common Stock
awarded to Mr. Cohlan, (d) 25,000 restricted shares of Triarc's Class A
Common Stock awarded to Mr. Levato and (e) options to purchase shares of
Triarc's Class A Common Stock held by the Named Officers (which shares and
options are described above), no director or executive officer of SEPSCO
beneficially owns any equity securities of SEPSCO or Triarc.
ITEM 13. Certain Relationships And Related Transactions.
CERTAIN TRANSACTIONS IN CONNECTION WITH THE REORGANIZATION
During Fiscal 1994, Triarc and its subsidiaries (including SEPSCO)
engaged in transactions with certain corporations which at that time might
have been deemed to be controlled by Victor Posner and which might have been
deemed to be affiliates of Triarc and its subsidiaries (including SEPSCO)
until the Reorganization (the "Former Affiliates").
Until January 31, 1994, Triarc leased approximately 297,000 square feet
at 6917 Collins Avenue, Miami Beach, Florida (the "Leased Space") from Victor
Posner Trust No. 6, a trust created for the benefit of Victor Posner and his
children (the "Landlord"), pursuant to a master commercial lease agreement
dated as of April 1, 1983 (the "Lease"). In Fiscal 1993, the Leased Space,
which constituted approximately 98% of the space in such building, was used
primarily for the corporate offices of Triarc, certain of its subsidiaries
and certain of the Former Affiliates. Also included in the Leased Space were
apartments which were used from time to time on an "as needed" basis by
Triarc, its subsidiaries, and the Former Affiliates for accommodations for
persons visiting such corporate offices. During the twelve month period ended
April 30, 1993 ("Triarc Fiscal 1993"), $5,790,000 of the cost of the Leased
Space was borne by Triarc and its subsidiaries, and $826,000 was charged to
the Former Affiliates. Approximately $436,000 of the amounts charged to
certain of the Former Affiliates during Triarc Fiscal 1993 which such Former
Affiliates were unable to pay was reserved and reallocated among Triarc and
its subsidiaries and the other participants under the Former Management
Services Agreements, of which approximately $380,000 was borne by Triarc and
its subsidiaries.
In connection with the Reorganization, the Landlord and Triarc entered
into a Lease Modification and Extension Agreement (the "Lease Modification").
The Lease Modification provided, among other things, for an extension of the
lease for a period of four years commencing on April 1, 1993 and ending on
March 31, 1997 and for a reduction in the annual amount of base rent
retroactive to October 1, 1992 to the lesser of $14.00 per rentable square
foot or an aggregate of $4 million per annum. In addition, the Lease
Modification provided for a reduction in the amount charged for inside and
outside parking associated with the building, the elimination of any charges
or fees on account of furniture and fixtures used in the apartments described
above and the elimination of any obligation to restore the premises at the
end of the term of the extended Lease. The Lease Modification also provided
that the Landlord may, on nine months" notice to Triarc, terminate the Lease,
and that Triarc may, on six months" notice to the Landlord, terminate the
Lease upon payment to the Landlord of a single payment (the "Early
Termination Payment") equal to all of the base rent which would otherwise be
payable for the balance of the extended term, without discount, plus
additional rent due through the date of such early termination, less any
amounts then owed by Landlord to Triarc, and, that thereafter Triarc and
subsidiaries shall be released from any further obligations under the Lease
Modification. Pursuant to the Lease Modification, all outstanding rent
obligations for the Leased Space, aggregating approximately $20,638,000, were
settled on April 23, 1993 for $11,738,000, resulting in a rent reduction
credit of approximately $8,900,000. Aggregate rent payments of approximately
$2.9 million were made by Triarc in respect of the Leased Space during the
eight month transition period from May 1, 1993 until December 31, 1993
("Triarc Transition 1993"). In July 1993, Triarc gave notice of termination
of the Lease effective January 31, 1994. Because Landlord and Triarc were
unable to agree upon the precise amount of the Early Termination Payment, the
parties extended the time for payment of the Early Termination Payment to
December 1994. In connection with such extension, the parties agreed that the
amount to be paid in respect of the Early Termination Payment would bear
interest from February 1, 1994 until paid at the prime or base reference rate
of Citibank. In Triarc Fiscal 1993, Triarc recorded a charge of approximately
$13,000,000 to provide for the remaining payments on the lease subsequent to
its cancellation. As part of the settlement with Victor Posner and certain
of his affiliates, including the Landlord, Triarc issued 1,011,900 shares of
Triarc's Class B Common Stock as consideration for the settlement of, among
other things, amounts due under the Lease Modification.
CERTAIN OTHER TRANSACTIONS
Triarc subleases through January 31, 1996 from an affiliate of Messrs.
Peltz and May approximately 26,800 square feet of furnished office space in
New York, New York owned by an unaffiliated third party. In addition, until
October 1993 Triarc also sublet from another affiliate of Messrs. Peltz and
May approximately 32,000 square feet of office space in West Palm Beach,
Florida owned by an unaffiliated landlord. Subsequent to October 1993,
Triarc assumed the lease for approximately 17,000 square feet of the office
space in West Palm Beach which expires in February 2000. The sublease for
the other approximate 15,000 square feet in West Palm Beach expired in
September 1994. The aggregate amounts paid by Triarc during Transition 1993
and 1994 with respect to affiliates of Messrs. Peltz and May for such
subleases, including operating expenses and net of amounts received by Triarc
for sublease of a portion of such space of ($238,000 and $358,000,
respectively) were $1,510,000 and $1,620,000 respectively, which are less
than the aggregate amounts such affiliates paid to the unaffiliated landlords
but represent amounts Triarc believes it would pay to an unaffiliated third
party for similar improved office space. Messrs. Peltz and May have
guaranteed to the unaffiliated landlords the payment of rent for the 17,000
square feet of office space in West Palm Beach and the New York office space.
In June 1994 Triarc decided to centralize its corporate offices in New York
City. In connection therewith, Triarc subleased the remaining 17,000 square
feet in West Palm Beach to an unaffiliated third party in August 1994.
Triangle Aircraft Service Corporation ("TASCO"), a company owned by
Messrs. Peltz and May, owns certain aircraft and from August 1992 until
September 30, 1993 made such aircraft available to Triarc and its
subsidiaries for a fee which was in accordance with Federal Aviation
Administration regulations applicable to non-charter carriers. On October 1,
1993, Triarc and TASCO entered into an agreement, which agreement was amended
as of September 30, 1994 (the "September 1994 Amendment"), pursuant to which
Triarc is leasing TASCO's aircraft on a "dry lease" basis (i.e., Triarc pays
an aggregate annual rent of $1,800,000 ($2,200,000 prior to the September
1994 Amendment) to TASCO and pays the operating expenses of the aircraft
directly to unaffiliated third parties). During Fiscal 1994, Triarc and its
subsidiaries paid $2,100,000 to TASCO pursuant to this agreement. In
addition, pursuant to the September 1994 Amendment, Triarc agreed, in lieu of
certain fees it would have incurred under the original agreement, to pay
certain costs required to make one of the leased aircraft "airworthy" in
connection with the sale of such aircraft to a third party and to pay certain
other fees related to such sale. Such costs and fees in the aggregate were
approximately $130,000.
Effective as of August 31, 1994, GS Holdings, Inc., a wholly-owned
subsidiary of Triarc, contributed to the capital of the Company 1% of the
outstanding shares of common stock of Graniteville. As a result of such
transfer, SEPSCO and GS Holdings, Inc. each hold 50% of the outstanding
shares of common stock of Graniteville.
Until February 1994, an affiliate of Messrs. Peltz and May leased an
apartment in New York City. Commencing June 1, 1993, such apartment was used
by executives of Triarc and in connection therewith, in Transition 1993,
Triarc reimbursed such affiliate approximately $28,000 for rent for the
apartment in Fiscal 1994.
In connection with the Reorganization, SEPSCO and Triarc entered into
the New Management Services Agreement, which provides for a revised
allocation method for those costs which cannot be directly allocated. As
revised, such costs will be allocated based upon the relative sum of the
greater of the earnings before income taxes, depreciation and amortization of
all the Triarc subsidiaries that have entered into the New Management
Services agreement and 10% of revenues of such subsidiaries. Management of
SEPSCO believes that such allocation method is reasonable. In connection
with the Discontinued Operations Plan, Triarc ceased providing any
significant services to SEPSCO, and therefore, effective as of January 1,
1994, Triarc stopped allocating any costs to SEPSCO under the New Management
Services Agreement.
Effective July 1, 1994, Public Gas entered into a Management Services
Agreement (the "Agreement") with National Propane whereby National Propane
provides to Public Gas management services including, but not limited to,
legal, accounting, finance, tax, risk management, information technology,
benefits design and administration, and general business operations. In
consideration for providing these services, National Propane receives a fee
equal to the expenses incurred by National Propane in managing Public Gas and
National Propane's business, allocated between National Propane and Public
Gas based on their relative proportions of the total number of districts,
total revenue, total gallons sold, and total earnings before interest, taxes,
depreciation, amortization and administrative expenses. Fees paid to
National Propane pursuant to the Agreement for the six month period ending
December 31, 1994 were $772,000 and are projected to be approximately
$1,800,000 for the fiscal year ending December 31, 1995.
In December 1994, SEPSCO sold substantially all of the remaining assets
of its cold storage operations of its refrigeration business segment to a
management-led buyout group. In addition, in February 1995, SEPSCO sold to a
member of its management team the stock of HOG. For additional information
regarding these transactions, see "Item 1. Business -- General --
Discontinued Operations" above.
In March 1995, SEPSCO entered into the MSA with the Management Service
Provider, a corporation controlled by two former members of SEPSCO's
management. For additional information regarding this transaction, see "Item
1. Business -- General -- Discontinued Operations" above.
For certain transactions involving Mr. Kalvaria, see "Item 11.
Executive Compensation -- Employment Arrangements with Executive Officers --
Leon Kalvaria."
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:
None.
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 c/o Triarc Companies, Inc., 900 Third Avenue, New
York, New York 10022.
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, 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 Certificate of Merger merging SEPSCO Merger Corporation
into SEPSCO, incorporated herein by reference to Exhibit
3.3 to SEPSCO's Quarterly Report on Form 10Q for the
quarterly period ended September 30, 1994 (See file # 1-
4351).
3.3 By-Laws of SEPSCO, incorporated herein by reference to
Exhibit 3.3 to SEPSCO's Current Report on Form 8-K dated
April 6, 1995 (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).
10.5 Management Services Agreement, dated as of November 15,
1994, between National Propane Corporation and Public Gas
Company, incorporated herein by reference to Exhibit 10.5
to SEPSCO's Current Report on Form 8-K dated April 6, 1995
(SEC file #1-4351).
10.6 Management Services Agreement, dated as of January 1, 1995,
by and between SEPSCO and Management Providers, Inc.,
incorporated herein by reference to Exhibit 10.6 to
SEPSCO's Current Report on Form 8-K dated April 6, 1995
(SEC file #1-4351).
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule for the fiscal year ended December
31, 1994, submitted to the Securities and Exchange
Commission in electronic format.
- -------------
*being filed herewith
(B) Reports on Form 8-K:
During the quarterly period from October 1, 1994 to December 31, 1994,
the registrant did not file any reports on Form 8-K.
(D) Financial Statements:
Consolidated financial statements of Graniteville Company for the year
ended February 28, 1993, and the ten month period from March 1, 1993 to
January 2, 1994, and for the year ended January 1, 1995.
Financial statements, independent auditors report and a report of
independent certified public accountants with respect to Graniteville Company
are included immediately following Exhibit 21.1.
<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)
By: NELSON PELTZ
Nelson Peltz
Dated: April 13, 1995 Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 12th day of April, 1995 by the following
persons on behalf of the registrant in the capacities indicated.
Signature Titles
NELSON PELTZ Chairman and Chief Executive
(Nelson Peltz) Officer, and Director
(Principal Executive Officer)
PETER W. MAY President and Chief Operating
(Peter W. May) Officer, and Director
(Principal Operating Officer)
LEON KALVARIA Vice Chairman and Director
(Leon Kalvaria)
JOSEPH A. LEVATO Executive Vice President and
(Joseph A. Levato) Chief Financial Officer
(Principal Financial Officer)
FRED H.SCHAEFER Vice President and Chief
(Fred H. Schaefer) Accounting Officer
(Principal Accounting Officer)
PAGE
<PAGE>
Exhibit 21.1
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant
March 30, 1995
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
PGC Holdings, Inc. Delaware
Public Gas Company (formerly Southeastern
Propane Gas Company) Florida
Royal Palm Ice Company Florida
Southeastern Gas Company Delaware
Geotec Engineers, Inc. West Virginia
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors
0Graniteville Company
Graniteville, South Carolina:
We have audited the accompanying consolidated balance sheet of
Graniteville Company (a South Carolina corporation and an indirect wholly-owned
subsidiary of Triarc Companies, Inc.) and Subsidiaries as of January 1, 1995,
and the related consolidated statements of income and retained earnings and of
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 1, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the
consolidated financial statements for the year ended January 1, 1995 taken as
a whole. Schedule II is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule is the responsibility of the
Company's management. This schedule has been subjected to the auditing
procedures applied in our audit of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects when considered
in relation to the basic consolidated financial statements for the year ended
January 1, 1995 taken as a whole.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 16, 1995 (except
with respect to the matter
discussed in Note 8, as
to which the date is
March 22, 1995).
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------------------------------------
To the Board of Directors and Stockholders,
GRANITEVILLE COMPANY:
We have audited the accompanying consolidated balance sheet of
Graniteville Company (a South Carolina corporation and 49% owned by
Southeastern Public Service Company and 51% owned by Triarc Companies, Inc.) and
subsidiaries as of January 2, 1994, and the related consolidated statements of
income and retained earnings and cash flows for the year ended February 28, 1993
and for the ten month period ended January 2, 1994. 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 the results of their operations and
their cash flows for the year ended February 28, 1993 and for the ten month
period ended January 2, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 5 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. Schedule II for the year
ended February 28, 1993 and for the ten month period ended January 2, 1994 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states 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 LLP
Columbia, South Carolina,
February 25, 1994.
<PAGE>
<TABLE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
January January
2, 1994 1, 1995
------- -------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,324 $ 4,094
Receivables, net (Notes 1 and 8) 84,489 94,287
Inventories (Note 1, 4 and 8) 89,052 82,798
Other current assets 1,244 1,715
-------- --------
Total current assets 177,109 182,894
-------- --------
Properties, at cost (Notes 3, 6 and 8) 178,937 203,285
Less accumulated depreciation and amortization 60,987 72,748
-------- --------
117,950 130,537
-------- --------
Note receivable from Triarc (including accrued
interest) (Notes 2 and 8) 70,446 73,827
Investment in affiliate (Note 12) -- 6,794
Cost in excess of net assets acquired
(Notes 1 and 3) -- 10,825
Other assets 6,130 4,730
-------- --------
$371,635 $409,607
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 12,174 16,541
Accounts payable 24,621 24,951
Accrued salaries and wages (Note 15) 5,271 3,418
Deferred income taxes (Notes 1 and 7) 6,506 7,288
Other current liabilities 10,058 10,437
-------- --------
Total current liabilities 58,630 62,635
Long-term debt (Notes 2 and 8) 150,949 154,632
Deferred income taxes (Notes 1 and 7) 21,934 23,308
Other liabilities (Note 10) 1,706 1,588
-------- --------
233,219 242,163
-------- --------
Commitments and contingencies (Notes 9, 13 and 19)
Stockholders' equity (Note 8):
Common stock, $5.00 par value; 10,000,000 shares
authorized; 4,984,045 shares issued and
outstanding 24,920 24,920
Additional paid-in capital (Note 3) 41,712 55,480
Retained earnings 71,784 87,044
-------- --------
Total stockholders' equity 138,416 167,444
-------- --------
$371,635 $409,607
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings
<CAPTION>
Ten months
Year ended ended Year ended
February January January
28, 1993 2, 1994 1, 1995
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Operating revenues $499,060 $448,867 $536,918
-------- -------- --------
Operating costs and expenses:
Cost of sales 402,190 369,132 450,964
Depreciation and amortization 10,379 11,067 14,073
General and administrative
expenses (Notes 11, 15 and 16) 34,902 36,610 37,927
Facilities relocation and corporate
restructuring charges (Notes 14
and 16) 1,855 1,843 --
-------- -------- --------
449,326 418,652 502,964
-------- -------- --------
Operating profit 49,734 30,215 33,954
-------- -------- --------
Other expenses (income):
Interest expense 9,282 12,024 15,976
Interest income (199) (79) (142)
Interest income from Triarc (Note 2) -- (4,452) (6,713)
Loss on investment in Chesapeake
Insurance Company Limited (Note 11) -- 2,500 --
Equity in loss of affiliate (Note 12) -- -- 573
Other, net (41) (520) (765)
-------- -------- --------
9,042 9,473 8,929
-------- -------- --------
Income before income taxes and
cumulative effect of accounting
changes 40,692 20,742 25,025
Provision for income taxes 15,332 9,938 9,765
-------- -------- --------
Income before cumulative effect of
changes in accounting principles 25,360 10,804 15,260
Cumulative effect of changes in accounting
principles (Note 5) (13,036) -- --
-------- -------- --------
Net income 12,324 10,804 15,260
Retained earnings at beginning of period 54,788 60,980 71,784
Cash dividends on common stock (6,132) -- --
-------- -------- --------
Retained earnings at end of period $ 60,980 $ 71,784 $ 87,044
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Ten months
Year ended ended Year ended
February January January
28, 1993 2, 1994 1, 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,324 $ 10,804 $ 15,260
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 10,379 11,067 14,073
Amortization of deferred financing
costs -- 893 1,465
Provision for deferred income
taxes, net of accounting changes 3,142 1,584 462
Provision for doubtful accounts 1,421 999 (211)
Interest income from Triarc
capitalized and not collected -- (3,846) (3,380)
Equity in loss of affiliate -- -- 573
Loss on investment in Chesapeake
Insurance Company Limited -- 2,500 --
Cumulative effect of changes in
accounting principles 13,036 -- --
Other, net 71 (464) (699)
Decrease (increase) in:
Receivables (34,682) (20,025) (9,586)
Inventories (3,476) (7,902) 6,254
Other current assets (237) (196) (471)
Increase (decrease) in:
Accounts payable 1,368 (129) 331
Other current liabilities 3,928 697 (1,476)
Other liabilities 429 80 (118)
-------- -------- --------
Net cash provided by (used in)
operating activities 7,703 (3,938) 22,477
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (9,731) (22,599) (22,645)
Advance to Triarc -- (66,600) --
Proceeds from sales of properties 508 540 1,641
Investment in affiliate -- -- (7,368)
Other, net 236 112 118
-------- -------- ---------
Net cash used in investing
activities (8,987) (88,547) (28,254)
-------- -------- ---------
Cash flows from financing activities:
Decrease in short-term borrowings (1,959) -- --
Repayments of long-term debt (8,478) (69,810) (12,740)
Additions to long-term debt 18,750 169,384 20,470
Payment of dividends on common stock (6,132) -- --
Increase in deferred financing costs (500) (6,000) (183)
-------- -------- --------
Net cash provided by
financing activities 1,681 93,574 7,547
-------- -------- --------
Net increase in cash 397 1,089 1,770
Cash at beginning of period 838 1,235 2,324
-------- -------- --------
Cash at end of period $ 1,235 $ 2,324 $ 4,094
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 9,334 $ 11,183 $ 14,526
======== ======== ========
Income taxes $ 8,105 $ 9,301 $ 6,419
======== ======== ========
Supplemental schedule of non-cash
investing and financing activities:
Total capital expenditures $ 10,075 $ 23,443 $ 22,965
Capital expenditures financed by
capital leases (344) (844) (320)
-------- -------- --------
$ 9,731 $ 22,599 $ 22,645
======== ======== ========
</TABLE>
In April 1994 the Company's ultimate parent, Triarc Companies, Inc.
("Triarc"), acquired the 28.9% minority interest in its subsidiary and the
50% owner of the Company, Southeastern Public Service Company ("SEPSCO") that
it did not already own through the issuance of its common stock. As
discussed further in Note 3 to the accompanying consolidated financial
statements, $13,768,000 of Triarc's excess of cost over the carrying value of
the minority interest acquired was pushed down to the Company. Due to its
noncash nature, such pushdown has not been reflected in the consolidated
statement of cash flows for the year ended January 1, 1995.
See accompanying notes to consolidated financial statements.
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 1, 1995
(1) Summary of Significant Accounting Policies
Basis of Presentation
As of April 14, 1994, Graniteville Company ("the Company") became an
indirect wholly-owned subsidiary of Triarc Companies, Inc. (referred to
herein as "Triarc" and, collectively with its subsidiaries, "Triarc
Companies"). Prior to that date, the Company was a 51% owned subsidiary of
Triarc and 49% owned by Southeastern Public Service Company ("SEPSCO").
SEPSCO is a wholly-owned subsidiary of Triarc (71.1% owned prior to April 14,
1994) (see Note 3).
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, "Fiscal 1993" refers to the year (52 weeks) ended February 28,
1993, "Transition 1993" refers to the ten month period (44 weeks) ended
January 2, 1994, and "Calendar 1994" refers to the year (52 weeks) ended
January 1, 1995.
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 method. Unamortized
deferred financing costs are included in "Other assets" in the accompanying
consolidated balance sheets.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired ("Goodwill") is being amortized on
the straight-line basis over 30 years. Amortization expense in Calendar 1994
was $208,000 (none in Fiscal 1993 or Transition 1993). Accumulated
amortization was $208,000 at January 1, 1995.
Derivative Financial Instruments
The Company is a party to an interest rate swap agreement entered into
as a hedge against the interest rate exposure of certain floating rate debt.
The amounts to be paid or received under such agreement are accrued
consistent with the terms of the agreement and are included in interest
expense. Other gains and losses implicit in such agreement are not
recognized currently but deferred over the life of the agreement. Such
nonrecognition is consistent with the nonrecognition of generally offsetting
gains and losses on the underlying hedged debt obligation.
Research and Development
Research and development costs are expensed during the year in which the
costs are incurred and amounted to $1,198,000 in Fiscal 1993, $1,064,000 in
Transition 1993 and $1,368,000 in Calendar 1994.
Income Taxes
The Company files a consolidated Federal income tax return with Triarc
effective April 14, 1994.
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 (14%, 17% and 15% in Fiscal
1993, Transition 1993 and Calendar 1994, respectively) 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
14%, 11% and 11% of the Company's sales in Fiscal 1993, Transition 1993 and
Calendar 1994, 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, L.P. ("DWG Acquisition"), a
newly formed limited partnership controlled by Nelson Peltz and Peter W. May,
acquired control of Triarc from Victor Posner ("Posner"), the former Chairman
and Chief Executive Officer of Triarc, and certain entities controlled by him
(collectively, "the Posner Entities") through a series of related
transactions (the "Change in Control"). Immediately prior to the Change in
Control, Posner owned approximately 46% of the outstanding common stock of
Triarc.
Concurrently with the consummation of the Change in Control, 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 Change in Control 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 8).
The following table summarizes the aggregate sources and uses of funds
by the Company in connection with the Change in Control:
(In thousands)
Sources:
Term Loan $ 80,000
Revolving Credit Loan 100,000
---------
Total sources of fund $ 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
=========
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 1, 1995, the note receivable from
Triarc consists of the following (in thousands):
Advance to Triarc $ 66,600
Capitalized interest 5,758
Accrued interest 1,469
---------
$ 73,827
=========
(3) SEPSCO Merger
On April 14, 1994, SEPSCO's shareholders other than Triarc approved an
agreement and plan of merger between Triarc and SEPSCO (the "SEPSCO Merger")
pursuant to which on that date a subsidiary of Triarc was merged into SEPSCO
whereby each holder of shares of SEPSCO's common stock (the "SEPSCO Common
Stock") other than Triarc, aggregating a 28.9% minority interest in SEPSCO,
received in exchange for each share of SEPSCO Common Stock, 0.8 shares of
Triarc's Class A Common Stock or an aggregate of 2,691,824 shares. Following
the SEPSCO Merger, the Company became an indirect wholly-owned subsidiary of
Triarc.
The fair value as of April 14, 1994 of the 2,691,824 shares of Class A
Common Stock issued in the SEPSCO Merger, net of certain related costs,
aggregated $52,105,000 (the Merger Consideration). The SEPSCO Merger has
been accounted for by Triarc in accordance with the "pushdown" method of
accounting. In accordance with the pushdown method of accounting, the excess
of $23,888,000 of the Merger Consideration over Triarc's minority interest
($28,217,000) in SEPSCO was "pushed-down" to SEPSCO ($17,004,000) and to the
Company ($6,884,000) as increases in Triarc's basis in SEPSCO and the
Company, respectively, and SEPSCO, in turn, "pushed-down" $6,884,000 to the
Company as an increase in SEPSCO's basis in the Company. The aggregate
$13,768,000 increased "Additional paid-in capital" reflecting Triarc and
SEPSCO's increased bases in the Company and was assigned as follows:
(In thousands)
Goodwill $ 11,033
Properties 4,429
Deferred income taxes (1,694)
---------
Additional paid-in capital $ 13,768
=========
(4) Inventories
The following is a summary of the major classifications of inventories:
January 2, January 1,
1994 1995
--------- ---------
(In thousands)
Raw materials $ 16,808 $ 15,458
Work in process 6,193 6,802
Finished goods 63,400 57,703
Supplies 2,651 2,835
-------- --------
$ 89,052 $ 82,798
======== ========
The current cost of LIFO inventories exceeded the carrying value thereof
by approximately $2,535,000 and $4,653,000 at January 2, 1994 and January 1,
1995, respectively. In Calendar 1994 certain inventory quantities were
reduced resulting in liquidations of LIFO inventory quantities carried at
lower costs from prior years. The effect of such liquidations was to
decrease cost of sales by $2,462,000. Liquidations of LIFO inventory
quantities in Fiscal 1993 and Transition 1993, if any, were not significant.
(5) 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 as "Cumulative effect of changes in accounting principles" in the
accompanying consolidated statement of income.
(6) Properties
The following is a summary of the major classifications of properties:
January 2, January 1,
1994 1995
---------- ---------
(In thousands)
Land $ 4,358 $ 6,320
Buildings and improvements 35,083 46,756
Machinery and equipment 134,628 144,859
Automotive and transportation
equipment 4,868 5,350
-------- --------
178,937 203,285
Less accumulated depreciation
and amortization 60,987 72,748
-------- --------
$117,950 $130,537
======== ========
(7) Income Taxes
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended Year Ended
February 28, January 2, January 1,
1993 1994 1995
-------- -------- --------
(In thousands)
Current:
Federal $ 11,109 $ 7,124 $ 8,105
State 835 1,230 1,198
-------- -------- -------
11,944 8,354 9,303
-------- -------- -------
Deferred:
Federal 2,234 1,429 372
State 1,154 155 90
-------- -------- -------
3,388 1,584 462
-------- -------- -------
$ 15,332 $ 9,938 $ 9,765
======== ======== =======
Deferred tax assets (liabilities) consist of the following components
(in thousands):
January 2, 1994 January 1, 1995
--------------------- --------------------
Current Non-current Current Non-current
Liability Liability Liability Liability
--------- ---------- --------- ---------
Receivables $ 1,706 $ -- $ 1,274 $ --
Inventories (10,694) -- (10,668) --
Accrued salaries and
wages 1,462 -- 687 252
Other accrued liabilities 1,009 -- 1,404 --
Properties -- (20,188) -- (22,137)
Other, net 11 (1,746) 15 (1,423)
--------- -------- -------- --------
$ (6,506) $ (21,934) $ (7,288) $(23,308)
========= ======== ======== ========
The increase in the aggregate net deferred tax liability from
$28,440,000 at January 2, 1994 to $30,596,000 at January 1, 1995 of
$2,156,000 is $1,694,000 greater than the deferred tax provision of $462,000
included in the provision for income taxes for Calendar 1994. Such
difference results from the deferred taxes of $1,694,000 provided in
connection with the pushdown of a portion of Triarc's and SEPSCO's increased
basis in the Company relating to its acquisition of the minority interest of
SEPSCO in the SEPSCO Merger as discussed in Note 3.
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 and Calendar
1994 as it is not required under SFAS 109):
Year Ended
February 28,
1993
------------
(In thousands)
Excess of tax over book
depreciation and amortization
on properties $ 1,508
Restructuring costs 320
Book-tax differences resulting
from purchase accounting
adjustments (94)
Alternative minimum tax
carryforward 2,684
Maintenance accrual not
deductible until paid (373)
Compensation accrual not
deductible until paid (1,487)
Inventory capitalization 43
Bad debt expense 29
Other, net 758
---------
$ 3,388
=========
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 1993
and 35% in Transition 1993 and Calendar 1994 is reconciled as follows:
Ten Months
Year Ended Ended Year Ended
February 28, January 2, January 1,
1993 1994 1995
-------- -------- ---------
(In thousands)
Income before income
taxes and cumulative
effect of changes in
accounting principles $ 40,692 $ 20,742 $ 25,025
======== ======== ========
Computed expected tax
provision $ 13,835 $ 7,260 $ 8,759
Increase in Federal taxes
resulting from:
Amortization of non-
deductible goodwill -- -- 74
Capital loss carryforward -- 875 --
Change in deferred taxes
for rate increase to 35% -- 638 --
State income taxes net of
federal benefit 1,313 674 837
Other, net 184 491 95
-------- -------- --------
$ 15,332 $ 9,938 $ 9,765
======== ======== ========
Federal income tax returns of the Company have been examined by the
Internal Revenue Service ("IRS") for the tax years 1986 through 1988. Such
examination has been substantially resolved at no material costs 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 examination 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.
(8) Long-term Debt
Long-term debt consists of the following:
January 2, January 1,
1994 1995
---------- ---------
(In thousands)
Term loan $ 72,500 $ 61,000
Revolving loan 89,324 103,038
Capitalized lease obligations
(Note 9) 793 853
Notes collateralized by machinery
and equipment maturing at various
dates through 2001 with interest
at various fixed and floating
rates (weighted average interest
rate of 8.1% at January 2, 1994
and 7.0% at January 1, 1995) 506 6,282
-------- --------
163,123 171,173
Less current portion of
long-term debt 12,174 16,541
-------- --------
$150,949 $154,632
======== =======
Aggregate annual maturities of the long-term debt as of January 1, 1995
are as follows (in thousands):
Calendar Year
-------------
1995 $ 16,541
1996 13,178
1997 13,115
1998 126,062
1999 and thereafter 2,277
---------
$ 171,173
=========
In connection with the Change in Control, on April 23, 1993 the Company
and C. H. Patrick entered into an $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").
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 9.56% at January 1, 1995). 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. 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 is shared
equally by Graniteville's commercial lender and the Company after deducting
customer credit losses.
On October 31, 1994, the Company amended the Graniteville Credit
Facility to provide for an increase in the maximum Revolving Loan to
$112,000,000 during the period October 31, 1994 through April 1, 1995. At
January 1, 1995, the Company had approximately $8,400,000 available under the
Revolving Loan.
On March 22, 1995, the Company further amended the Graniteville Credit
Facility to establish the maximum Revolving Loan at $116,000,000 during the
period March 1, 1995 through March 31, 1995, at $124,000,000 during the
period April 1, 1995 through June 30, 1995, at $120,000,000 during the period
July 1, 1995 through September 30, 1995 and at $115,000,000 thereafter.
The Term Loan is repayable $11,500,000 in 1994, $12,000,000 in 1995
through 1997 and $25,000,000 in 1998. 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 9.92% at January 1, 1995). 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 Companies pledged all of the issued and outstanding stock
of the Company (including the 50% owned by SEPSCO and subject to a pre-
existing pledge of the 50% owned by Triarc in connection with Triarc's
intercompany note payable to SEPSCO in the principal amount of $26,538,000),
and 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).
As a result of SEPSCO's merger with Triarc on April 14, 1994, the
Company became eligible to join in Triarc's consolidated Federal income tax
return. Under the tax sharing agreement with Triarc, the Company will 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. The Company has continued to file
separate state income tax returns. 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 is unable to pay any dividends or make any loans or
advances to its stockholders, including Triarc, prior to December 31, 1995.
In April 1994, the Company entered into a seven year term loan agreement
to finance the acquisition of certain machinery and equipment. The loan, in
the original amount of $6,500,000, is repayable in equal monthly installments
of principal plus accrued interest. Simultaneously, the Company entered into
an interest rate swap agreement (the "Swap Agreement") that effectively fixed
the interest rate on such borrowings at 6.9% per annum for the seven year
term of the loan.
(9) 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
January 2, 1994 and January 1, 1995 in the amount of $987,000 and
$1,299,000, 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:
Capital Operating
Calendar Year Leases Leases
------------- ---------- ---------
(In thousands)
1995 $ 326 $ 1,216
1996 257 1,391
1997 199 731
1998 140 544
1999 34 470
Thereafter -- 2,653
------- --------
Total minimum lease payments 956 $ 7,005
========
Less amounts representing interest 103
--------
Present value of minimum lease
payments (Note 8) $ 853
========
Rental expense under operating leases which is primarily for the rental
of real estate and equipment, was $1,794,000 in Fiscal 1993, $1,911,000 in
Transition 1993, and $2,261,000 in Calendar 1994.
(10)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 benefit obligation as of
that date.
Net periodic postretirement benefit cost consists of the following:
Ten Months
Year Ended Ended Year Ended
February 28, January 2, January 1,
1993 1994 1995
-------- -------- --------
(In thousands)
Service cost--benefit earned
during the period $ 7 $ 6 $ 5
Interest cost on accumulated
postretirement benefit
obligation 88 74 65
Net amortization of unrecognized
gain -- -- (10)
-------- -------- --------
$ 95 $ 80 $ 60
======== ======== ========
The determination of net periodic postretirement benefit cost is based
upon the following assumptions:
Ten Months
Year Ended Ended Year Ended
February 28, January 2, January 1,
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Discount rate 8.0% 7.0% 7.0%
Health care cost trend 12.0% 12.0% 11.0%
Ultimate health care cost
trend (to be achieved in
1999) 6.0% 6.0% 6.0%
The accumulated postretirement benefit obligation consists of the
following:
January 2, January 1,
1994 1995
---------- ---------
(In thousands)
Retirees and dependents $ 1,013 $ 751
Active employees eligible to retire 96 50
Active employees not eligible to retire 131 61
-------- --------
Accumulated post retirement benefit
obligation 1,240 862
Unrecognized net gain (loss) (97) 224
-------- --------
Accrued postretirement benefit
obligation recognized in the
consolidated balance sheets $ 1,143 $ 1,086
======== ========
The accumulated postretirement benefit obligation is based upon the Plan's
benefit provisions and the following assumptions:
January 2, January 1,
1994 1995
---------- ---------
(In thousands)
Assumed health care cost trend rate
used to measure expected costs 12.0% 11.0%
Ultimate health care cost trend rate
(to be achieved in 1999) 6.0% 6.0%
Discount rate 7.0% 8.0%
If the health care cost trend rate were increased by 1%, the accumulated
postretirement benefit obligation as of January 1, 1995 would have been
increased by approximately $78,000. The effect of this change on the
aggregate of the service cost and interest cost components of the net
periodic postretirement benefit cost for Calendar 1994 would be an increase
of approximately $13,000.
(11)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 1993, Transition 1993 and Calendar
1994, such costs aggregated $2,441,000, $7,904,000 and $6,000,000,
respectively. Such amounts include approximately $1,299,000 in Fiscal 1993
and $105,000 in Transition 1993 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 $824,000 in Fiscal 1993 and $612,000 in Transition 1993.
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 16).
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 $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 $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 $459,000
and $77,000 in Fiscal 1993 and the applicable period of Transition 1993,
respectively.
In prior years, 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 wrote off its investment in such stock in Transition 1993 since the
decline in value was deemed to be other than temporary.
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 Calendar 1994).
(12)Investment in Affiliate
In August 1994, the Company, through C. H. Patrick, acquired an
approximate 22% equity interest in Taysung Enterprise Company, Ltd.
(Taysung), a Taiwanese manufacturer of dyes and chemicals, representing a
total investment of $7,368,000. C. H. Patrick also obtained exclusive
distribution rights in North, Central and South America for Taysung products
for a period of five years. The Company's equity in the losses of Taysung
aggregated $573,000 in Calendar 1994.
(13)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 (i) human health, (ii) to existing
recreational uses or (iii) to the existing biological communities. In March
1994, DHEC appeared to conclude that while environmental monitoring at
Langley Pond should be continued, based on currently available information,
the most reasonable alternative is to leave the pond sediments undisturbed
and in place. DHEC has requested the Company to submit a proposal by mid-
April 1995 concerning periodic monitoring of sediment deposition in the pond
and the Company intends to comply with the request. 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
DHEC's recent conclusion and the absence of reasonable remediation
alternatives, 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 owns a nine acre property in Aiken County, South Carolina
(the Vaucluse Landfill), which was used as a landfill until 1973. The
Vaucluse Landfill was operated jointly by the Company and Aiken County and
may have received municipal waste and possibly industrial waste from the
Company as well as sources other than the Company. In March 1990, a "Site
Screening Investigation" was conducted by DHEC. In June 1992 the Company
conducted its initial investigation. The United States Environmental
Protection Agency conducted an Expanded Site Inspection (an "ESI") in January
1994 and the Company conducted a supplemental investigation in February 1994.
In response to the ESI, DHEC has indicated its desire to have an
investigation of the Vaucluse Landfill and has verbally requested that the
Company submit a proposal to DHEC outlining the parameters of such an
investigation. Since the investigation has not yet commenced, the Company is
currently unable to estimate the cost to remediate the landfill. Such cost
could vary based on the actual parameters of the study. Based on currently
available information, the Company does not believe that the outcome of this
matter will have a material adverse effect on its future 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 future results of operations of the Company.
(14)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.
(15)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
and is included in "General and administrative expenses" in the accompanying
consolidated statements of income.
Effective 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% of employee contributions. Employer matching contributions aggregated
$1,252,000 in Calendar 1994 and are included in "General and administrative
expenses" in the accompanying consolidated statements of income.
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 $3,538,000 in Fiscal
1993. In Transition 1993, the Company reversed prior year accruals of
$968,000 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 and $1,018,000 in Calendar 1994.
Net incentive compensation expense under the Incentive Plans and the New
Incentive Plans was, $3,538,000, $1,030,000 and $1,018,000 in Fiscal 1993,
Transition 1993 and Calendar 1994, respectively, and is included in "General
and administrative expenses" in the accompanying consolidated statements of
income.
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 by the Company as compensation expense over the applicable vesting
period through December 31, 1996. In addition, during Transition 1993 and
Calendar 1994 Triarc granted stock options to certain key employees of the
Company under the Triarc Equity Plan. Of the Transition 1993 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 is being recognized in 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 $215,000 during Transition 1993 and $455,000 in Calendar
1994 and is included in "General and administrative expenses" in the
accompanying consolidated statements of income.
(16)Significant Charges in Transition 1993
The accompanying consolidated statement of income includes the following
significant charges recorded in Transition 1993 (in thousands):
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 (B) 1,660
Income tax benefit relating to the above
charges (1,179)
--------
$ 2,324
========
- -------------
(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 restructuring 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 Change in Control. Such amount has been provided in "General and
administrative expenses" in the accompanying consolidated statement of
income for Transition 1993.
(17)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 and January 1,
1995:
Note receivable from Triarc - The carrying amount of $70,446,000 and
$73,827,000 at January 2, 1994 and January 1, 1995, respectively,
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 and $171,173,000 at January 2, 1994 and January 1, 1995,
respectively, approximates the fair value of debt based upon the floating
rate of interest applicable to the Graniteville Credit Facility and the
recent origination of other debt.
Interest rate swap - As of January 1, 1995, the fair value of the Swap
Agreement was an asset of approximately $338,000 which is the estimated
amount the Company would receive to terminate the Swap Agreement, as quoted
by the financial institution. The Swap Agreement has been entered into with
a major financial institution which, therefore, is expected to be able to
fully perform under the terms of the agreement, thereby mitigating any credit
risk of the transaction.
(18)Prior Year Comparable Period
The Company changed its year end effective January 2, 1994, as
previously disclosed. The following unaudited operating results for the
twelve months ended January 2, 1994 are presented for comparative purposes
(in thousands):
Operating revenues $ 540,121
Operating profit $ 40,772
Provision for income taxes $ 13,329
Net income $ 16,414
(19)Subsequent Event
On February 3, 1995, the Company suffered fire damage to equipment in
the weaving department at one of its manufacturing facilities. The Company
is currently taking steps to mitigate the effect of this loss of production
and believes that it has adequate property damage and business interruption
insurance coverage and does not expect this event to have a material adverse
effect on the Company's financial position or results of operations.
PAGE
<PAGE>
</TABLE>
<TABLE>
SCHEDULE II
GRANITEVILLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Additions
---------------------
Charged
(Credited) Charged to Deductions
Balance at to Other from Balance at
Beginning Costs and Accounts Reserves End of
Description of Period Expenses (1) (2) Period
----------- --------- -------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Fiscal year ended February 28, 1993:
Trade receivables - allowance for
doubtful accounts $ 3,792 $ 1,421 $ 75 $ (1,573) $ 3,715
======== ======== ======== ========= ========
Ten months ended January 2, 1994:
Trade receivables - allowance for
doubtful accounts $ 3,715 $ 999 $ 85 $ (337) $ 4,462
======== ======== ======== ========= ========
Year ended January 1, 1995:
Trade receivables - allowance for
doubtful accounts $ 4,462 $ (211) $ -- $ (920) $ 3,331
======== ======== ======== ========= ========
<FN>
- -------------
(1) Recoveries of accounts previously determined to be uncollectible.
(2) Accounts determined to be uncollectible.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements included in the accompanying Form
10-K of Southeastern Public Service Company for the twelve-month period ended
December 31, 1994 and is qualified in its entirety by reference to such Form
10-K.
</LEGEND>
<CIK> 0000092050
<NAME> SOUTHEASTERN PUBLIC SERVICE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 25,807
<SECURITIES> 9,152
<RECEIVABLES> 5,141
<ALLOWANCES> 90
<INVENTORY> 997
<CURRENT-ASSETS> 53,821
<PP&E> 24,852
<DEPRECIATION> 13,931
<TOTAL-ASSETS> 188,369
<CURRENT-LIABILITIES> 62,757
<BONDS> 567
<COMMON> 1
0
0
<OTHER-SE> 120,641
<TOTAL-LIABILITY-AND-EQUITY> 188,369
<SALES> 28,110
<TOTAL-REVENUES> 28,110
<CGS> 21,359
<TOTAL-COSTS> 21,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,169
<INCOME-PRETAX> 7,960
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,960
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
